After posting banner performances in 2021, broad-based commodities exchange traded funds are repeating those positive feats again in 2022.
Said another way, ETFs such as the WisdomTree Enhanced Commodity Strategy Fund (GCC) aren’t just trading to the upside on a year-to-date basis. Those funds are also significantly outpacing the broader equity benchmarks, including the S&P 500.
Of course, persistent inflation is enhancing the case for ETFs like GCC. Historically, commodities are one of the premier inflation-fighting classes, and that’s been the case to start 2022 and last year. What’s more, it’s not just inflation, but the extent to which this bout of rising Consumer Price Index readings is catching experts by surprise.
“Inflation is not only high, but readings have taken analysts by surprise. The Citi Inflation Surprise Indices (which measure the deviation between consensus surveys of economists and actual inflation readings), are at a series high for global, the euro area and the U.K., and are just coming off the highs for the U.S. Looking for the source of this unexpected surge in prices across the globe, the disruption of the global supply chain is at the top of the list,” says Pierre Debru, head of quantitative solutions and multi-asset management at WisdomTree Europe.
The $266.5 million GCC is delivering the goods for investors in 2022, as highlighted by a year-to-date gain of 10.09% compared to a loss of 7.57% for the S&P 500. One of the secrets to GCC’s success is that it’s a broad ETF. It has over 40 holdings, and that was one factor in favor of the fund last year when gold surprisingly disappointed against the backdrop of soaring inflation.
As WisdomTree’s Debru notes, there are other factors auguring well for GCC and commodities in 2022, including the depth at which commodities are correlated to inflation.
“Commodities are, in fact, intrinsic components of inflation indexes around the world. Up to 50% of inflation baskets are directly or indirectly linked to commodity prices through food, energy or materials used in cars, buildings and infrastructure,” adds the strategist. “This is even more important today.”
Bolstering the case for GCC are the historical benefits of broad-based commodities strategies relative to other inflation-fighting asset classes.
“Broad commodities are the only asset here that has historically performed the best in months when inflation is the highest. U.S. equities, miners and even U.S. TIPS have historically performed the best in low inflation environments. This is again quite a powerful testament to commodities as an inflation hedge,” concludes Debru.
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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.
