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5 ETFs at The Heart of the Commodity Comeback This Year

After 10 years of underperformance, commodities are seeing a huge boom with several of them hitting new all-time highs buoyed by optimism over economic growth, reflation trade, rising consumer confidence and higher housing price. The massive liquidity injections by central banks across the globe have been among the major catalysts.

A weaker greenback also added to the strength as it makes dollar-denominated assets attractive for foreign investors, raising the appeal for commodities. This is because commodities are often viewed as a hedge against inflation and a weaker dollar (read: Top ETF Stories of April: Economically Sensitive Areas Steady).

Notably, the Bloomberg Commodity Spot Index, which tracks price movements for 23 raw materials, is hovering at levels not seen since 2012. Invesco DB Commodity Index Tracking Fund DBC, which tracks a broad basket of the 14 most heavily traded commodity futures contracts, has risen 25.1% in the year-to-date time frame compared to gains of 11.5% for the broad market fund SPY.

Prices for a wide range of commodities from copper to oil to timber have been skyrocketing as the world’s largest economies recover from the pandemic. With COVID-19 vaccines now reaching millions of Americans, demand for these raw materials is surging amid limited supplies, production issues and poor weather. The demand for air travel and cars has been surging as restrictions have been eased and the economy has reopened. Manufacturing and industrial activities are also picking up.

In addition, improving conditions in China, the world’s largest consumer of raw materials, has been driving commodity prices higher. The world’s second-biggest economy saw a record 18.3% growth in the first quarter of 2021. This represents the biggest jump in GDP since China started keeping quarterly records in 1992. China is buying a record amount of soybeans, as well as grains like corn and wheat (read: Why Agricultural Commodity ETFs Are Soaring This Year).

According to data compiled by Bloomberg, hedge funds have increased bullish bets in commodity futures for three consecutive weeks. Goldman Sachs GS expects commodities to rally another 13.5% over the next six months.

Given this, we have highlighted five best-performing commodity ETFs so far this year from different areas that will continue to trend higher if the favorable factors persist.

Breakwave Dry Bulk Shipping ETF BDRY – Up 240.4%

This fund provides exposure to the dry bulk shipping market through a portfolio of near-dated freight futures contracts on dry bulk indices. The fund has accumulated about $78.9 million in AUM and trades in a good volume of about 312,000 shares per day on average. It charges a higher annual fee of 3.32% (read: Winning Sector ETFs on Biden's First 100 Days of Ruling).

iPath Bloomberg Tin Subindex Total Return ETN JJT – Up 55.8%

The product follows the Bloomberg Tin Subindex Total Return, which delivers returns through an unleveraged investment in the futures contracts on tin. The ETN has been able to manage $7.7 million in AUM and trades in a moderate volume of roughly 1,000 shares per day. Expense ratio comes in at 0.75%. JJT has a Zacks ETF Rank #3 (Hold) with a High risk outlook

iPath Global Carbon ETN GRN – Up 51.1%

This note provides investors with exposure to the Barclays Global Carbon II TR USD Index, which measures the performance of the most liquid carbon-related credit plans. It has amassed $35.3 million in its asset base and charges 75 bps in annual fees. The ETN trades in volume of 7,000 shares per day on average.

United States Gasoline ETF UGA – Up 41.8%

This fund provides investors with exposure to front-month gasoline futures, tracking RBOB gasoline for delivery to the New York harbor, which is traded on NYMEX. The ETF is illiquid with a daily trading volume of about 117,000, suggesting that investors have to pay extra beyond the annual fee of 75 bps per year. The fund has managed assets of $108.1 million (read: U.S. Inflation Hits More Than 2-Year High: ETFs & Stocks to Win).

Teucrium Corn Fund CORN – Up 37.8%

This ETF provides investors an easy way to gain exposure to the price of corn futures in a brokerage account. It uses three futures contracts for corn, all of which are traded on the CBOT Futures Exchange. The three contracts include the second-to-expire contract, weighted 35%; the third-to-expire contract, weighted 30%; and the contract expiring in the December following the expiration month of the third-to-expire contract, weighted 35%. CORN has accumulated $187.9 million and trades in an average daily volume of 311,000 shares. It has 1.95% in expense ratio and has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook.

Bottom Line

The recent trends have been encouraging for commodity ETFs, though many of them have an unfavorable Zacks Rank. Investors could consider these for a near-term play on commodities that are enjoying a huge run-up in their prices.

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The Goldman Sachs Group, Inc. (GS): Free Stock Analysis Report
 
SPDR-SP 500 TR (SPY): ETF Research Reports
 
TEUCRM-CORN FD (CORN): ETF Research Reports
 
US GAS FUND LP (UGA): ETF Research Reports
 
INVS-DB COMDTY (DBC): ETF Research Reports
 
IPATHBB-TIN SI (JJT): ETF Research Reports
 
IPATH-SB CRBN (GRN): ETF Research Reports
 
BRKWAVE-DBS ETF (BDRY): ETF Research Reports
 
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