3 Commodity ETFs to Buy for Inflation Protection Commodity ETFs can offer inflation protection because the prices of physical goods tend to rise with inflation. By investing, you can benefit from the increasing value of commodities during inflationary...
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Commodity ETFs can offer inflation protection because the prices of physical goods tend to rise with inflation. By investing, you can benefit from the increasing value of commodities during inflationary periods while also gaining diversification across various sectors. Let's examine the fundamentals of commodity ETFs such as the iShares S&P GSCI Commodity (GSG), iShares GSCI Commodity (COMT), and Invesco DB Commodity (DBC). Read more.
Commodity ETFs provide diversification and tend to perform well when the stock market struggles. They are favored by investors looking to hedge against inflation, as commodity prices often rise with inflation. Although inflation is cooling, the core CPI reveals ongoing price increases in key sectors, which could sustain demand for commodities as businesses and consumers seek stable value.
For sustainable options, investors might consider buying commodity ETFs such as the iShares S&P GSCI Commodity-Indexed Trust (GSG), iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT), and Invesco DB Commodity Index Tracking Fund (DBC).
With inflation staying above the Federal Reserve's 2% target, commodities have historically acted as a hedge. Commodity ETFs, particularly those focused on food, can help preserve purchasing power as food prices continue to rise. In September, food prices increased by 0.4%, contributing to a 2.3% year-on-year rise in the food index, making commodity ETFs potentially more beneficial.
Meanwhile, gold and precious metals play a vital role in cultural markets worldwide, primarily as jewelry and ornaments. The global precious metals market is projected to reach $501.09 billion by 2032, growing at a CAGR of 5.6%. Additionally, Goldman Sachs Research anticipates prices will hit $2,700 by early next year, driven by Federal Reserve interest rate cuts and gold purchases by emerging market central banks.
Furthermore, if inflation expectations stay high or fears of future inflation arise from factors like supply chain issues or geopolitical tensions, commodity prices may rise, making them more appealing. In such cases, commodities offer tactical investment opportunities, while infrastructure investments, such as oil pipelines and toll roads, provide more consistent returns during inflationary periods.
Considering these conducive trends, let's evaluate the three Commodity ETFs picks, starting with number three.
ETF #3: iShares S&P GSCI Commodity-Indexed Trust (GSG)
GSG is an exchange-traded fund launched by iShares Delaware Trust Sponsor LLC. The fund is managed by BlackRock Fund Advisors and invests in commodity markets. It invests through derivatives, such as futures contracts, in a diversified group of physical commodities. The fund seeks to track the performance of the S&P GSCI Total Return Index.
With $918.50 million in assets under management, it has a total of one holding. GSG has an expense ratio of 0.75%, higher than the category average of 0.71%. GSG's net inflows stood at $13.06 million over the past month. It currently has a NAV of $22.03.
It has gained 9.9% year-to-date and 9.8% over the past month to close the last trading session at $22.04.
GSG's POWR Ratings reflect this promising outlook. The ETF's overall A rating equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
GSG has an A grade for Buy & Hold and Trade and a B for Peer. It is ranked #9 out of 120 ETFs in the Commodity ETFs category. Click here to access all of GSG's POWR Ratings.
ETF #2: iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT)
COMT is an exchange-traded fund launched by BlackRock, Inc. It is co-managed by BlackRock Fund Advisors and BlackRock International Limited and invests in commodity markets. The fund invests in various commodities through derivatives, such as futures, including aluminum, crude oil, coffee, copper, corn, gold, natural gas, silver, and wheat. It seeks to track the performance of the S&P GSCI Dynamic Roll (USD) Total Return Index using a representative sampling technique.
With $925.70 million in AUM, the fund's top holding is U.S. Dollar, with a 44.85% weighting, followed by BlackRock Cash Funds Treasury SL Agency Shares, with a 9.95% weighting, and CORPORATE BOND, with 2.96%. It has a total of 70 holdings.
COMT has an expense ratio of 0.48%, lower than the category average of 0.71%. It currently has a NAV of $27.22. Its net inflows came in at $284.42 million over the past six months.
The fund's annual dividend of $1.30 yields 4.78% on the current share price. Its four-year average yield is 12.58%. Its dividend payouts have increased at a CAGR of 138.2% over the past three years.
COMT has gained 8.5% year-to-date and 9.5% over the past month to close the last trading session at $27.21.
COMT's strong outlook is reflected in its POWR Ratings. The ETF has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
It has an A grade for Buy & Hold and Trade and a B for Peer. It is ranked #8 in the same group. To see all the POWR Ratings for COMT, click here.
ETF #1: Invesco DB Commodity Index Tracking Fund (DBC)
DBC is an exchange-traded fund launched by Invesco Ltd. The fund is managed by Invesco Capital Management LLC and invests in commodity markets. It uses futures contracts to invest in light sweet crude oil (WTI), heating oil, RBOB gasoline, natural gas, Brent crude, gold, silver, aluminum, zinc, copper grade A, corn, wheat, soybeans, and sugar. The fund seeks to replicate the performance of the DBIQ Optimum Yield Diversified Commodity Index Excess Return.
With $1.46 billion in assets under management, DBC's top holding is
United States Treasury Bills, with a 40.38% weighting, followed by Short Term Investments Trust Government & Agency Portfolio Institutional, with a 36.14% weighting, and Invesco Short Term Treasury ETF, with 14.60%. It has a total of 286 holdings.
DBC has an expense ratio of 0.87%, higher than the category average of 0.71%. DBC's net outflows were $59.50 million over the past month. It currently has a NAV of $23.27.
The ETF pays an annual dividend of $1.09, which yields 4.68% on the current price. It has a four-year average dividend yield of 1.23%. Its dividend payouts have increased at a CAGR of 42% over the past five years.
DBC has gained 9.8% over the past month and 5.9% over the past nine months to close the last trading session at $23.28.
DBC's POWR Ratings reflect its bright prospects. The ETF's overall A rating equates to a Strong Buy in our proprietary rating system.
DBC has an A grade for Buy & Hold and Trade and a B for Peer. Within the Commodity ETFs group, it is ranked #6. To get all of DBC's POWR Ratings, click here.
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DBC shares were trading at $22.93 per share on Monday afternoon, down $0.35 (-1.50%). Year-to-date, DBC has gained 4.04%, versus a 24.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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