Copper, soybeans, and crude oil are just a few commodities that are rising thanks to inflation fears. Investors can have them all and more with the Direxion Auspice Broad Commodity Strategy ETF (COM).
Inflation fears have been adding an extra dose of volatility to the capital markets as of late. With the rising prices of goods, commodities offer investors a mechanism to hedge inflation.
The strength in commodities this year can be seen in the performances of the S&P 500 index and the Bloomberg Commodity Index. The latter is up on the former by about 8%.
COM seeks to provide total return that exceeds that of the Auspice Broad Commodity Index over a complete market cycle. The fund is an actively managed ETF that seeks to provide total return that exceeds that of the index over a complete market cycle by actively managing a portfolio of Treasury bills, other government securities, money market funds, cash, other short-term bond funds, highly rated corporate, or other non-government fixed-income securities, with maturities of up to 12 months.
The index is a rules-based index that attempts to capture trends in the commodity markets. Right now, the sector spread includes a mix of metals, agriculture, and energy.
Features of COM:
- A 40 Act, non K1 generating approach to commodity investing
- Exposure to 12 commodities that can individually be long or flat (if a short signal is triggered the position is moved to cash)
- The ability to make position changes intra-month based on trends
- Monthly rebalance based on risk reduction where the allocation of individual components is reduced if volatility exceeds certain predetermined risk levels
- A “smart” contract roll approach designed to select cost-effective futures contracts to roll into upon expiration of current contract
The Inflation Fighter
Rather than hold various commodities as separate positions, having an all-encompassing fund like COM makes it easy to have an inflation hedge. As prices start to increase, investors can also look to COM as a diversification tool.
“Because commodities prices typically rise when inflation is accelerating, they offer protection from the effects of inflation,” an Investopedia article noted. “Few assets benefit from rising inflation, particularly unexpected inflation, but commodities usually do.”
“As the demand for goods and services increases, the price of goods and services rises as does the price of the commodities used to produce those goods and services,” the article added. “Futures markets are thus used as continuous auction markets and as clearing houses for the latest information on supply and demand.”
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