Commodities have been on a remarkable surge this year, with the Bloomberg Commodity Index, a widely viewed measure of broad commodities prices, gaining about 4% so far. Signs of economic recovery worldwide, as well as hopes of easing monetary policies in the United States and Europe, are the biggest drivers.
The solid trend is likely to continue, per research firm Goldman Sachs GS, with commodities expected to return 15% by the year-end. This is especially true as borrowing costs of raw materials will decline in a lower rate environment, thereby driving the demand for raw materials. A lower interest rate environment also makes precious metals more appealing than alternative investments like bonds, as they do not pay any interest.
A combination of factors like recovery in global manufacturing, ongoing geopolitical risks, and the possibility of a soft landing for the U.S. economy will also fuel strength. Additionally, demographic trends, such as aging populations and higher levels of public debt, point toward a more inflationary backdrop for the wider economy that will prompt investors to allocate more to commodities as a hedge against inflation (read: 5 Commodity ETFs Riding High in 2024).
Among broad commodities, Goldman predicts energy and industrial metals like copper, aluminum and gold to likely advance 20% this year. Global oil prices have soared to the highest level in seven months, especially buoyed by the Ukrainian attacks on Russian energy facilities and escalating conflict in the Middle East that has threatened oil supply.
Precious metals like gold, silver and copper have taken flight in recent months. The yellow metal has hit a series of all-time highs lately on renewed expectations of U.S. interest rate cuts in June, strong safe-haven appeal and strong central bank buying (read: Should You Buy Gold ETFs Now?).
Meanwhile, silver prices climbed above the $25-an-ounce mark for the first time in 2024 on higher industrial and manufacturing demand. The global push for green energy, increasing demand in areas like 5G, a rebound in global computer shipments, the photovoltaics and automotive industries, and new sources of demand for sensors used in IoT and OLED lighting are propelling silver demand. Notably, copper prices soared to an 11-month high in March on strong demand for green metals, those that are used to make clean energy, and increasing supply concerns,
Investors seeking to ride on Goldman’s views on commodities can choose from a wide variety of products, including ETFs and ETNs. Below we have highlighted five ETFs that we think could be well-positioned if Goldman Sachs’ commodity prediction comes true.
Invesco DB Commodity Index Tracking Fund (DBC)
Invesco DB Commodity Index Tracking Fund tracks the DBIQ Optimum Yield Diversified Commodity Index Excess Return, which delivers returns through an unleveraged investment in the most heavily traded futures contracts on the 14 most heavily traded and important physical commodities in the world. Invesco DB Commodity Index Tracking Fund charges 87 bps in annual fees while trading in a solid volume of 943,000 shares per day. The product has managed assets of $2 billion and has gained nearly 8% so far this year.
United States Commodity Index Fund (USCI)
United States Commodity Index Fund’s investment objective is the daily changes in percentage terms of its shares’ net asset value to reflect the daily changes in percentage terms of the SummerHaven Dynamic Commodity Index Total Return. The index is designed to reflect the performance of a portfolio of 14 commodity futures from 27 possible futures contracts. United States Commodity Index Fund has amassed $174.7 million in its asset base and trades in a lower volume of about 11,000 shares a day. It has an expense ratio of 1.07% and has added 11.4% this year.
Invesco DB Energy Fund (DBE)
Invesco DB Energy seeks to track changes in the level of the DBIQ Optimum Yield Energy Index Excess Return plus the interest income. The benchmark is a rules-based index composed of futures contracts on some of the most heavily traded energy commodities in the world — light sweet crude oil (WTI), heating oil, Brent crude oil, RBOB gasoline and natural gas. Invesco DB Energy has AUM of $94.6 million and trades in an average daily volume of 25,000 shares. It charges 77 bps in annual fees and has gained 12.1%.
United States Copper Index Fund (CPER)
United States Copper Index Fund seeks to track the performance of the SummerHaven Copper Index Total Return. The index is designed to reflect the performance of the investment returns from a portfolio of copper futures contracts on the COMEX exchange. United States Copper Index Fund has accumulated $174 million in its asset base and charges 97 bps in annual fees. It trades in an average volume of 107,000 shares a day and has a Zacks ETF Rank #3 (Hold). CPER delivered returns of about 10% so far this year (read: ETFs to Play the Potential Strength in Copper Prices).
SPDR Gold Trust ETF (GLD)
SPDR Gold Trust ETF tracks the price of gold bullion measured in U.S. dollars and kept in London under the custody of HSBC Bank USA. It is an ultra-popular gold ETF with AUM of $61 billion and a heavy volume of about 6.4 million shares a day. SPDR Gold Trust ETF charges 40 bps in fees per year from investors and has a Zacks ETF Rank #3. It is up 12.5% this year (read: Silver ETFs Outshining Gold).
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SPDR Gold Shares (GLD): ETF Research Reports
Invesco DB Commodity Index Tracking ETF (DBC): ETF Research Reports
Invesco DB Energy ETF (DBE): ETF Research Reports
United States Commodity ETF (USCI): ETF Research Reports
United States Copper ETF (CPER): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
