As we enter the final quarter of 2021, signs indicate that price and wage inflation may not be as transitory as expected but instead may be building into a secular trend. When inflation strikes, commodities historically have helped investors weather the storm. As the early stages of a longer commodity “supercycle” emerge, how should investors position their portfolios to take advantage of developing trends?
In the upcoming webcast, Commodities: A Tactical Opportunity in Inflationary Times, Ed Egilinsky, Managing Director, Head of Sales and Distribution, Head of Alternative Investments, Direxion; and Tim Pickering, Founder, President and CIO, Auspice, will outline insights and actionable strategies on inflation gets sticky, the real price of infrastructure and alternative energy initiatives, and investing in commodities.
For instance, the actively managed Direxion Auspice Broad Commodity Strategy ETF (NYSEArca: COM) can help provide a total return that exceeds that of the Auspice Broad Commodity Index over a complete market cycle.
COM will maintain a portfolio similar to those included in the index through exchange traded commodity futures contracts, swap contracts, and investments in other investment companies or exchange traded notes to obtain exposure to the commodities market.
The underlying Auspice Broad Commodity Index is a rules-based index that utilizes a quantitative methodology to track a diversified portfolio of 12 commodity futures contracts dependent on the historical volatility of that component. The total index value and is independent of the volatility and position of other components. Each holding is then positioned either long or flat, depending on prevailing price trends.
The 12 commodities that comprise the index may include soybeans, corn, wheat, cotton, sugar, crude oil, natural gas, gasoline, heating oil, copper, gold, and silver.
Moreover, the benchmark includes a “smart” contract roll to minimize the adverse effects of contagion and maximize the positive impacts of backwardation in the futures market. Expiring futures contracts are replaced based on an optimization process that selects a contract from a universe of futures contracts within the next 13 month period.
The ETF will then try to exceed the benchmark index’s return through active management of a portfolio of Treasury bills, government securities, money market funds, cash, other short-term bond funds, highly rated corporate, or other non-government fixed income securities.
COM will also utilize a subsidiary to invest in commodity futures contracts, which is wholly owned and controlled by the fund. Since the ETF itself does not hold or trade futures contracts but does so through the subsidiary, investors are not subject to troublesome K-1 forms come tax season.
Financial advisors who are interested in learning more about the commodities markets can register for the Friday, November 19 webcast here.