Back to top

Image: Bigstock

Commodity ETF (COMT) Surges in Popularity, Tops $2B AUM

Read MoreHide Full Article

The iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT - Free Report) has been surging in popularity with inflows of nearly $1.5 billion in the past 10 days. In fact, it more than doubled in just the last two trading sessions of May by gathering over $1.1 billion. Additionally, it has added about $344 million so far in June.

Given the incredible asset growth in just a few days, it is worth shedding light on some of the key aspects of the fund and the broad commodities fundamentals.

COMT in Focus

This fund offers exposure to commodities across energy, metals, agriculture and livestock sectors, through a rules-based futures strategy designed to minimize costs associated with futures investing. Energy takes the largest share at 55.2% of assets, followed by agriculture (20.1%) and industrial metals (12.5%).

Investors should note that the ETF never came closer to $1 billion AUM in more than six and half years of debut but the last 10 days has proven to be a game changer for the fund. The fund now has $2.3 billion in AUM.

Inside the Popularity

This commodity ETF also provides protection against inflation. This nature seems to be the biggest attraction that has made COMT the biggest gainer in terms of asset growth among others amid the broad commodity rally. Further, this ETF is one of the lowest cost choices in the commodity space, charging 48 bps in annual fees. It also trades in a solid average daily volume of more than 1.1 million shares, ensuring higher liquidity (read: 3 ETFs to Protect Against Inflation).

Further, COMT is benefiting from a prolonged period of backwardation, where later-dated contracts are cheaper than near-term contracts. Currently, the commodity market is in backwardation, which is favorable for the commodities and its ETFs. As such, the fund continues to roll over the next month futures contracts at a lower price, thereby making profits. This signals a continued bullishness in the commodity market. This trend is likely to persist in the near term, acting as the biggest catalyst for the commodity.

Broad Commodity Trends

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 a higher housing price. The massive liquidity injections by central banks across the globe have been among the major catalysts (read: Commodity Prices on an Unstoppable Rally: ETFs to Benefit).

A weaker greenback added to the strength as it makes dollar-denominated assets attractive to foreign investors, raising the appeal for commodities. This is because commodities are often viewed as a hedge against inflation and a weaker dollar.

China, the world’s largest consumer of raw materials, has been driving commodity prices higher on improving conditions. China is buying a record quantity of soybeans, as well as grains like corn and wheat, and is trying to reduce the production of the key metals like steel and aluminum. Food prices are seeing a spike due to poor weather in the key growing nations like Brazil (read: 5 ETFs to Profit From Higher Food Prices).

Lumber is also not behind as surging demand for suburban housing on record-low mortgage rates and migration from cities continue to push its prices higher. The demand for air travel and cars has seen a surge, driving jet fuel prices higher, as restrictions have been eased and the economy has reopened. Manufacturing and industrial activities are also picking up with a spike in metal prices.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT) - free report >>