Stick to broad commodities exposure amid China power crunch, CIO says
Commodity investors should stay diversified as China’s power crunch roils global energy and materials prices, one market analyst says.
Though exchange-traded fund buyers have poured nearly $12 billion into China-based ETFs this year, trying to profit from one piece of the crisis may not be the best strategy, ETF Trends’ Dave Nadig told CNBC’s “ETF Edge” this week.
“What we’re really understanding or starting to understand is the interconnectedness between the energy markets, industrial production and industrial metals, and I think it’s a little bit tough to play an individual one of those,” the firm’s chief investment officer and director of research said in the Monday interview.
For example, the United States Copper Index Fund (CPER) has climbed more than 4% in the last week as investors try to play the widely used manufacturing metal for a profit.
“It is a market that I think requires an iron stomach if you’re trying to make individual calls,” Nadig said. “I think broad, baseline exposure is the way to go.”
The GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (COMB) fits that description, he said.
A low-cost offering invested in 23 commodity futures spanning the energy, metals and soft commoditiess markets, COMB’s sweeping exposure may be just right for some investors, GraniteShares founder and CEO Will Rhind said in the same interview.
“Of course, there are other more specific investments like gold, for example, like oil. There are other ways that you can get much more specific in terms of targeting different commodities,” said Rhind, whose firm also runs the popular GraniteShares Gold Trust (BAR).
“Whether you’re worried specifically about energy, whether you’re worried about food prices, whether you’re worried just about inflation itself, there are ways you can find that in the ETF market,” Rhind said.
Another market analyst suggested steering clear of commodities altogether.
“Don’t try to be a hero,” State Street head of SPDR Americas research Matthew Bartolini said in the same interview.
“A lot of people have been burned in the past trying to predict the path or pace of different commodity prices, particularly oil, which is so connected to different parts of the global economy, particularly what’s going on in China, but also the reopening,” Bartolini said.
Instead, he suggested investors consider the ripple effects of commodity pricing pressures. That could lead to higher inflation and higher prices for consumers, in which case things like Treasury Inflation-Protected Securities could do well, he said.
“Don’t try to forecast the unforecastable with so many unknowns in the marketplace and just try to eke out a couple basis points in your bond portfolio, which is really hard to do these days,” Bartolini said.