Investors following the smart money may want to pile into commodities and funds like the Invesco DB Commodity Index Tracking Fund (DBC).
In this case, tailing hedge fund bets on commodities could be the winning play. With a rise in consumer prices, commodities can also serve as an inflation hedge.
“Hedge funds plowed money into bets that the commodities rally of 2021 still has further to run, snapping three straight weeks of reductions,” a Bloomberg article noted. “Net-long positions on a basket of 20 commodities rose by 8.3% in the week ended Tuesday, according to U.S. Commodity Futures Trade Commission data compiled by Bloomberg. Investors added wagers on further price gains for raw materials including crude oil, natural gas, corn and copper, while cutting those for platinum and soybeans.”
Per the fund’s description, DBC seeks to track changes, whether positive or negative, in the level of the DBIQ Diversified Agriculture Index Excess Return™ (DBIQ Diversified Agriculture Index ER or Index), plus the interest income from the fund’s holdings of primarily U.S. Treasury securities and money market income less the fund’s expenses.
Tighter Supply and an Active Option
The Federal Reserve has already acknowledged rising inflation, but still kept rates near zero at its last interest rate policy decision. Nonetheless, tighter supply of raw materials could counteract any moves by the Fed, such as its pledge to scale back on its bond purchases.
“The best commodity rally since 2016 has lost some of its steam over the past few weeks amid speculation the Federal Reserve may soon start to scale back its massive bond purchases to fight inflation, while the spread of the Delta variant of Covid-19 has raised concerns that demand might not remain so strong moving forward,” the Bloomberg article added. “Still, tightening supplies of some raw materials have helped sustain prices close to multi-year highs.”
Another option to consider is the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC). An actively managed strategy, PDBC seeks to achieve its investment objective by investing in a combination of financial instruments that are economically linked to the world’s most heavily traded commodities.
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