After a decade in which deflationary forces prevailed, the use case for commodities from a portfolio context was limited. Many investors either chose not to allocate to commodities or allocated only small sleeves to the asset class. For those who had been investing in commodities over the past 10 years, 2022 was a good time to cash out of commodities, take some profit, and reassess.
Now, commodities make sense as a part of an asset allocation for the years ahead. Fred Edwards, ETF specialist at Neuberger Berman, said that “the price action observed over the past 36 months represents the first period of what many are calling the ‘commodities super-cycle.’”
Edwards explained: “Because commodity cycles are so long in duration and because markets are able to re-price so quickly in the modern age, those focused on short-term price action are susceptible to dismissing the big picture, where commodities relative cheapness to stocks and bonds still warrants a more thorough evaluation.”
Now, as financial conditions are tighter, equities have become a riskier asset. So, commodities may be a good hedge against inflation because they tend to perform well when prices for consumer goods are up.
The Neuberger Berman Commodity Strategy ETF (NBCM) invests in commodity-linked derivatives with an active risk-balanced, diversified approach that seeks to minimize the effects of market volatility. Tactical exposure adjustments expand potential alpha sources by considering top-down macro variables among commodity sectors and individual commodity outlooks to take advantage of short- and long-term opportunities.
Scott Kilgallen, head of North America intermediary client coverage at Neuberger Berman, said in a news release announcing the ETF’s launch that “commodities can enhance strategic asset allocation by providing diversification benefits while potentially mitigating the effects of inflation.”
The fully transparent ETF’s fixed income holdings are actively managed and designed to preserve capital and serve as collateral for the ETF’s derivative positions while also seeking to generate additional yield. The fund is managed by Hakan Kaya, David Wan, and Michael Foster.
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