Calling inflation transitory is so 2021. Early 2021 at that. That ship sailed. Even the Federal Reserve eventually acknowledged that inflation is persistent.
As seasoned investors know, there are some asset classes that are known for their inflation-fighting capabilities, and commodities are among the prime inflation-beating destinations. That much was on display last year as commodities were among the best-performing asset classes.
Making commodities' 2021 run all the more impressive is the fact that gold – one of the most heavily traded and investable commodities – was a laggard. Think about that. Gold sagged, but the broader commodities complex rallied.
That could bode well for commodities exchange-traded funds (ETFs) in 2022. With inflation still running high and showing no signs of relenting and the possibility of gold rebounding, some commodities ETFs could be sound bets this year. Here are three to consider:
1. WisdomTree Enhanced Commodity Strategy Fund (GCC)
The WisdomTree Enhanced Commodity Strategy Fund (GCC) provides exposure to energy, agriculture, industrial and precious metals futures contracts. Additionally, this commodities ETF can also allocate up to 5% of its weight to bitcoin futures. One word makes GCC a compelling bet this year: Inflation.
“Although central banks—including the U.S. Federal Reserve—have dropped their ‘inflation is transitory mantra’ and are preparing to tighten policy, their actions can only impact demand growth,” says Nitesh Shah, WisdomTree Europe head of research. “A key source of much of the inflation we have seen in the past year has been supply-side disruptions. As Omicron cases rise globally, there is a cogent reminder that supply-side frictions are not guaranteed to dissolve.”
An added benefit of GCC is that it's actively managed, meaning it offers flexibility and the ability to tap exiting opportunities in the commodities while potentially avoiding large allocations to laggards.
2. Invesco DB Commodity Index Tracking Fund (DBC)
The Invesco DB Commodity Index Tracking (DBC) is a passively managed fund tracking the DBIQ Optimum Yield Diversified Commodity Index Excess Return, but it is a broad-based commodities ETF as it features exposure to 14 of the most heavily traded commodities.
Investors looking for protection against higher energy prices will find an ally in DBC as the fund devotes over 55% of its weight to related commodities. It's also a credible avenue to gaining base metals exposure, which could be a positive trait if the global economy proves sturdy this year.
“Incrementally stronger prospects for base metals and still-high iron ore, coal and gold prices will be supportive of the global mining sector’s performance in 2022,” notes Fitch Ratings. “Fitch’s neutral sector outlook balances prevailing economic growth expectations with risks from potential negative market sentiment, particularly due to liquidity concerns related to the Chinese property sector, which could affect commodity prices.”
3. Global X Disruptive Materials ETF (DMAT)
The Global X Disruptive Materials ETF (DMAT) is a new kid on the commodities ETF block having debuted on January 24. DMAT is a unique, equity-based commodities ETF in that in provides exposure to producers of raw materials, also known as rare earths or disruptive metals, that are key elements in the output of a slew of innovative technologies.
DMAT follows the Solactive Disruptive Materials Index, which is a basket of companies that mine and producer the following materials: Rare Earth Materials, Zinc, Palladium and Platinum, Nickel, Manganese, Lithium, Graphene and Graphite, Copper, and Cobalt and Carbon Fiber.
Despite being a new commodities ETF, DMAT could be an interesting way to play themes such as electric vehicles and renewable energy.
“The world is rapidly embracing digital and clean technologies like electric vehicles (EV), hydrogen fuel cells, wind turbines, robotics’ traction motors, and solar photovoltaic (PV) panels, just to name a few,” says Pedro Palandrani of Global X. “These technologies can help slow climate change, improve productivity, or connect millions of people around the world. But behind these complex technologies are many essential inputs like metals, minerals, and materials. Without them, these technologies would not exist—at least in their current forms.”
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
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