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Commodities have been on the longest losing streak in more than three years with the Bloomberg Commodity Index, which measures returns on 22 raw materials, plunging 8% from a year-to-date look. This is especially thanks to a strong dollar, trade frictions and concerns over China’s demand outlook. Additionally, weakening economic growth in many parts of the world dampened the appeal for commodities.
Notably, a high dollar made dollar-denominated assets expensive for foreign investors, potentially diminishing demand for commodities.
Oil price has collapsed in recent months owing to oversupply concerns and waning global demand while metals tumbled amid worries of hard landing in China and slowing global economic growth. The ongoing trade war between the world's two largest economies has sparked fears of a global slowdown (read: Oil Price on Longest-Ever Losing Streak: 5 ETF Zones to Benefit).
Given the beaten down prices, New York-based research firm Goldman Sachs (GS - Free Report) believes commodities offer an extremely attractive entry point for longs in oil, gold and metals. The analyst expects commodities to surge around 17% over the coming months, with this week’s G-20 meeting in Buenos Aires cited as a potential turning point for raw materials. It believes that “many of the political uncertainties weighing on commodity markets have a significant chance of being addressed in the G20 meeting. This includes some improvement on the China-U.S. relationship and, like in the 2016 G-20 meetings, some greater clarity on a potential OPEC cut.”
Per the analyst Jeffrey Currie, an OPEC supply cut and its announcement will lead to a recovery in oil prices. As such, Currie advises going long on short-dated Brent. Additionally, the oil market will likely return to a state of backwardation (the front-month contract is higher than the next-month contract), which is a positive for oil futures.
Meanwhile, the firm predicts gold prices climbing in 2019 given that the market has priced in 10 of the 12 Fed rate hikes and that the strong dollar trend is reversing. If growth in the United States slows down next year as expected, gold would benefit from higher demand for defensive assets (read: Top and Flop ETFs at Half-Way Q4).
Investors seeking to ride on Goldman’s views on commodities can choose from a wide variety of products, including ETFs and ETNs. Below we have highlighted five ETFs which we think could be well positioned if Goldman Sachs’ commodity prediction comes true:
Invesco DB Commodity Index Tracking Fund (DBC - Free Report)
This fund tracks the DBIQ Optimum Yield Diversified Commodity Index Excess Return, which delivers returns through an unleveraged investment in the most heavily traded futures contracts on 14 physical commodities, with heavyweights going to energy and agriculture. The fund charges 89 bps in annual fees while trades in a solid volume of 2.3 million shares per day. The product has managed assets of $2.1 billion and has lost 7.9% so far this year.
This fund follows the S&P GSCI Total Return Index offering exposure to a broad range of commodities through investments in futures contracts. Energy makes up for nearly 60.5% of the portfolio, while agriculture and industrial metals round off the next two spots with double-digit exposure each. GSG has AUM of $1.3 billion and average daily volume of 492,000 shares. It charges 75 bps in annual fees and has shed 6.8% year to date.
This fund provides direct exposure to the spot price of Brent crude oil on a daily basis through futures contracts. It has amassed $80 million in its asset base and trades in a good volume of roughly 310,000 shares a day. The ETF charges 90 bps in annual fees and expenses. BNO is down 6.8% so far this year (read: Oil in Bear Market: Leveraged ETFs to Gain From).
This fund tracks the price of gold bullion measured in U.S. dollars and kept in London under the custody of HSBC Bank USA. It is the ultra-popular gold ETF with AUM of $30 billion and average daily volume of around 7.2 million shares a day. Expense ratio comes in at 0.40%. The fund has shed 6.5% so far this year and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: U.S. Yields Rise to Multi-Year High: ETFs to Gain & Lose).
This ETF offers exposure to the day-to-day movement of the price of gold bullion and is backed by physical gold under the custody of JP Morgan Chase Bank in London. It has AUM of $10.7 billion and trades in solid volume of 13.1 million shares a day on average. The ETF charges 25 bps in annual fees and has lost 6.3% so far this year.
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Follow Goldman With These Commodity ETFs
Commodities have been on the longest losing streak in more than three years with the Bloomberg Commodity Index, which measures returns on 22 raw materials, plunging 8% from a year-to-date look. This is especially thanks to a strong dollar, trade frictions and concerns over China’s demand outlook. Additionally, weakening economic growth in many parts of the world dampened the appeal for commodities.
Notably, a high dollar made dollar-denominated assets expensive for foreign investors, potentially diminishing demand for commodities.
Oil price has collapsed in recent months owing to oversupply concerns and waning global demand while metals tumbled amid worries of hard landing in China and slowing global economic growth. The ongoing trade war between the world's two largest economies has sparked fears of a global slowdown (read: Oil Price on Longest-Ever Losing Streak: 5 ETF Zones to Benefit).
Given the beaten down prices, New York-based research firm Goldman Sachs (GS - Free Report) believes commodities offer an extremely attractive entry point for longs in oil, gold and metals. The analyst expects commodities to surge around 17% over the coming months, with this week’s G-20 meeting in Buenos Aires cited as a potential turning point for raw materials. It believes that “many of the political uncertainties weighing on commodity markets have a significant chance of being addressed in the G20 meeting. This includes some improvement on the China-U.S. relationship and, like in the 2016 G-20 meetings, some greater clarity on a potential OPEC cut.”
Per the analyst Jeffrey Currie, an OPEC supply cut and its announcement will lead to a recovery in oil prices. As such, Currie advises going long on short-dated Brent. Additionally, the oil market will likely return to a state of backwardation (the front-month contract is higher than the next-month contract), which is a positive for oil futures.
Meanwhile, the firm predicts gold prices climbing in 2019 given that the market has priced in 10 of the 12 Fed rate hikes and that the strong dollar trend is reversing. If growth in the United States slows down next year as expected, gold would benefit from higher demand for defensive assets (read: Top and Flop ETFs at Half-Way Q4).
Investors seeking to ride on Goldman’s views on commodities can choose from a wide variety of products, including ETFs and ETNs. Below we have highlighted five ETFs which we think could be well positioned if Goldman Sachs’ commodity prediction comes true:
Invesco DB Commodity Index Tracking Fund (DBC - Free Report)
This fund tracks the DBIQ Optimum Yield Diversified Commodity Index Excess Return, which delivers returns through an unleveraged investment in the most heavily traded futures contracts on 14 physical commodities, with heavyweights going to energy and agriculture. The fund charges 89 bps in annual fees while trades in a solid volume of 2.3 million shares per day. The product has managed assets of $2.1 billion and has lost 7.9% so far this year.
iShares S&P GSCI Commodity-Indexed Trust (GSG - Free Report)
This fund follows the S&P GSCI Total Return Index offering exposure to a broad range of commodities through investments in futures contracts. Energy makes up for nearly 60.5% of the portfolio, while agriculture and industrial metals round off the next two spots with double-digit exposure each. GSG has AUM of $1.3 billion and average daily volume of 492,000 shares. It charges 75 bps in annual fees and has shed 6.8% year to date.
United States Brent Oil Fund (BNO - Free Report)
This fund provides direct exposure to the spot price of Brent crude oil on a daily basis through futures contracts. It has amassed $80 million in its asset base and trades in a good volume of roughly 310,000 shares a day. The ETF charges 90 bps in annual fees and expenses. BNO is down 6.8% so far this year (read: Oil in Bear Market: Leveraged ETFs to Gain From).
SPDR Gold Trust ETF (GLD - Free Report)
This fund tracks the price of gold bullion measured in U.S. dollars and kept in London under the custody of HSBC Bank USA. It is the ultra-popular gold ETF with AUM of $30 billion and average daily volume of around 7.2 million shares a day. Expense ratio comes in at 0.40%. The fund has shed 6.5% so far this year and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: U.S. Yields Rise to Multi-Year High: ETFs to Gain & Lose).
iShares Gold Trust (IAU - Free Report)
This ETF offers exposure to the day-to-day movement of the price of gold bullion and is backed by physical gold under the custody of JP Morgan Chase Bank in London. It has AUM of $10.7 billion and trades in solid volume of 13.1 million shares a day on average. The ETF charges 25 bps in annual fees and has lost 6.3% so far this year.
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 >>