Financial advisors tout commodities as an ideal inflation hedge when it comes to getting tactical exposure to the markets. One such way is via the Direxion Auspice Broad Commodity Strategy ETF (COM).
Commodities certainly make for a bullish, long strategy at least through the end of the year given that it appears inflation won’t be letting up anytime soon. The U.S. Federal Reserve looks like it will maintain its hawkishness after its largest rate hike since the 1990s.
“(Fed Chair Jerome) Powell said he wants the policy rate at 3.00-3.50% by year-end and the Fed dots tell us that the policy rate could be closer to 4.00% by the end of 2023,” FXStreet analysts said. “With inflation proving sticky this summer, there seems no reason for the Fed to back away from this hawkish messaging over coming months. That should keep the dollar supported on dips.”
COM seeks to provide total return that exceeds that of the Auspice Broad Commodity Index over a complete market cycle. 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.
COM can be used as part of a portfolio that already contains stocks and bonds, giving investors additional diversification that’s much needed in these volatile times. Having assets like commodities that are uncorrelated with traditional market assets like stocks and bonds can help hedge against rising consumer prices and other inflationary pressures.
Commodities: The Only Bright Spot
Another reason to add commodities is quite simply that they’ve been one of the few bright spots in the capital markets right now. As mentioned, even bonds have been following stocks downward thus far in 2022.
Other assets deemed as uncorrelated to the stock market like digital assets have also been floundering. The same can’t be said for commodities.
“Through the first five months of the year, nearly every asset class is down, and many are down BIG,” Direxion Investments noted. “Traditional asset allocation strategies have not helped, since both stocks and bonds lost value at the same time.”
“The burgeoning asset class – crypto – has absolutely crashed this year, losing 50% of its value,” they added. “The only bright spot this year has been commodities, which thanks to years of poor returns are serially under-owned by investors, meaning many portfolios would not have benefited.”
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