As the broad market continues to show weakness, concerns about rising interest rates and inflation are bubbling to the top of many ETF investors’ list of concerns.
In the first quarter of 2022, commodity ETFs saw above-average inflows for the first time in many years.
According to data compiled by Bloomberg last month, commodity ETFs attracted $4.5 billion in new assets under management, outpacing equity ETF inflows for the week ended March 4. Agricultural ETFs, such as the Teucrium Wheat Fund (WEAT), drew big investments as investors fretted about shortages of grains and other products.
Energy, too, has been soaring. The tactical “Undiscovered Portfolio” holds the Invesco S&P SmallCap Energy ETF (PSCE), which tracks performance of small companies engaged in the business of producing, distributing or servicing energy-related products. Sub-industries of stocks in this ETF include oil-and-gas exploration and production, refining, oil services and pipelines.
In the strategic portfolios, the moderate and conservative allocations include the iShares Commodities Select Strategy ETF (COMT), which gives investors access to commodities across the energy, metals, agriculture and livestock sectors. This strategy not only diversifies your portfolio but can also offer protection against inflation.
That’s because commodity prices tend to rise when inflation is heating up. That can offset the performance of stocks and bonds, which typically go into a downturn during times of accelerating inflation.
In addition to the inflation hedge, commodities are offering a way to book profits while equities are going through a phase of drawdowns.
We’ll continue to monitor the situation with broad market volatility, and when necessary, will send out alerts with any changes to either the tactical or strategic portfolios.
As always, don’t hesitate to reach out with any question. Feel free to contact me at kate@cabotwealth.com.