ETF investors should consider the role that commodities can play in a well-balanced investment portfolio.
In a recent webcast Commodities: Demand Disruption, Supply Disruption, Opportunity RetentionRobert Minter, ETF Investment Strategy Director, Aberdeen Standard Investments; and Stan Kiang, Director of Strategic Accounts, Aberdeen Standard Investments, argued that while commodities have always complemented diversified portfolios, they are becoming even more visible as we begin to emerge from the global COVID-19 pandemic.
The strategists noted that the prices of raw materials and goods are rising. For example, looking at the annualized price increase at the end of May 2021, investors may find that sawnwood prices rose 261%, gasoline rose 100%, copper 89%, sugar 57%, silver 53%. and pig prices fell. 114% higher incl.
Looking ahead, Aberdeen tracks five major themes that will continue to drive the commodity market: Federal Reserve monetary policy, US government fiscal policy, decarbonization and climate change policies, capital constraints, and de-globalization.
First, the Fed is pursuing a very loose monetary policy to support the ailing economy that is recovering from the coronavirus pandemic. The US Federal Reserve purchased bonds, bought back mortgages and increased its balance sheet to $ 120 billion a month.
The US government has also thrown money into the economy in hopes of supporting the recovery. The budgetary response to the coronavirus by the end of 2020 was about $ 3.4 trillion, and the Biden administration is still considering further increases in infrastructure spending. Consequently, the outstanding debt of the US Treasury grew by 22% over the year.
Decarbonization is now a global problem and is contributing to a reversal of economic trends. Europe, China and the United States account for $ 51 trillion in global GDP, and they are all decarbonized. In the last supercycle 1999-2008. The Bloomberg Commodity Index is back 220%.
Changing climate policies have also resulted in capital constraints on investment in fossil fuels, resulting in lower demand for fossil fuels. For example, the fossil fuel sector has already allocated about $ 14.56 trillion in institutional investment. Meanwhile, capital investment in the oil and gas industry has declined significantly.
Finally, de-globalization trends have also exacerbated stress in commodity markets.
When looking not only at macroeconomics, but also at commodities, they have also played a crucial role as a portfolio diversifier in a traditional stock and bond portfolio. The Bloomberg Commodity Index showed a 20-year annual volatility of 16.2%, up from 19.6% for the S&P 500 TR.
Investors interested in diversifying their portfolios with greater access to commodities can turn to ETF options. Aberdeen Standard Investments offers actively managed Aberdeen Standard Strategy Bloomberg All Commodity Strategy K-1 Free ETF (NYSEArca: BCI)…
BCI is trying to deliver long-term capital gains that exceed the Bloomberg Commodities Index. It may not invest in all components of the benchmark, but will have interests similar to those included in the index, along with short-term investment grade fixed income securities, money market instruments, certain banking instruments, and cash or other monetary alternatives. … The underlying Bloomberg Commodities Index tracks the price of moving positions in a basket of commodity futures with maturities ranging from 1 to 3 months.
Financial advisors interested in learning more about commodity opportunities can watch the webcast upon request here.