With Commodities, Active Management Can Be Better Bet | ETF Trends

Even with no contributions from gold, the broader commodities complex turned in a banner showing last year.

With inflation expected to linger throughout much of the first half of 2022, perhaps longer, expectations are in place that hard assets, including commodities, could post another strong year. The 2022 case for commodities is bolstered by the point that consensus is building that gold will bounce back this year.

Some market observers contend that the best way for investors to embrace commodities is with broad-based funds that offer the benefits of active management. Enter the WisdomTree Enhanced Commodity Strategy Fund (GCC).

The $226.5 million GCC returned 20% last year, offering investors a fresh, more nimble alternative to index-based commodities strategies.

“Investing in commodities requires an active approach. For starters, the two major commodities indexes differ considerably. The S&P GSCI Commodity Index has about 50% in energy; the Bloomberg Commodity Index is one-third energy, one-third metals, and the rest in other commodities,” reports Reshma Kapadia for Barron’s.

For its part, GCC focuses on agricultural and energy commodities as well as industrial and precious metals. Currently, the fund has exposure to more than 30 commodities futures contracts in addition to a position in the WisdomTree Bloomberg Floating Rate Treasury Fund (NYSEArca: USFR).

One of the advantages of active management in commodities is that fund managers can access commodities that index funds often feature limited or no exposure to, such as lithium and green metals. Additionally, GCC stands out for being a straightforward option in a field of active funds that are often overly complex.

“Finding an actively managed fund isn’t as easy as it seems. Most of the commodity-oriented mutual funds tracked by Morningstar are quantitative—they use computer models to find, for example, the best trades based on how futures contracts are priced, and to exploit arbitrage opportunities between different duration futures contracts,” according to Barron’s.

To the points about GCC’s flexibility and its ability to dwell where rival passive funds do not, the WisdomTree fund can allocate up to 5% of its weight to bitcoin futures. The ETF’s exposure to the largest digital currency is currently 1.67%. That could add to GCC’s inflation-fighting capabilities, particularly if bitcoin rebounds from its recent slump and GCC boosts exposure to the cryptocurrency.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.