commodity exchange traded funds are finally beginning to turn some heads as investors seek out alternative assets to diversify potential turns in traditional assets like stocks and bonds.
For instance, despite the depressed inflationary environment, many still expect inflation to at the very least hit the Federal Reserve’s 2% target ahead. However, inflationary spikes could catch some off guard.
“In fact, over the past 15 years, commodities have experienced a more than 0.80 correlation to changes in the CPI — higher than US and other developed-market equities, REITs and even Treasury Inflation-Protected Securities (TIPS),” according to Invesco. “With US economic growth accelerating, global economies on the mend and interest rates still historically low, the risk that inflation exceeds the Federal Reserve’s long-term target of 2% is on the rise, as illustrated by 10-year TIPS break-even rates, which represent the difference in yield between 10-year Treasury bonds and TIPS. TIPS break-even rates provide a rough gauge of investors’ expectations for inflation.”
For more information on the commodities market, visit our commodity ETFs category.