The Invesco DB Commodity Index Tracking Fund (DBC) returned a jaw-dropping 41.4% in 2021, and whereas asking for a sequel to that efficiency may be asking rather a lot, the diversified commodities trade traded fund may nonetheless generate loads of upside in 2022.
Even with a blistering efficiency in 2021, commodities are attractively valued relative to different property, together with bonds and equities, says Jeff Currie of Goldman Sachs. The economist sees distinctive alternative with commodities in 2022. That may very well be to the liking of DBC buyers.
The $2.84 billion ETF follows the DBIQ Optimum Yield Diversified Commodity Index and sometimes holds futures contracts of 14 closely traded commodities. That diversified line-up may very well be advantageous to buyers this 12 months.
“The very best place to be proper now, significantly given the Fed pivot, are commodities,” stated Currie in a recent interview with Bloomberg. “We predict you’re going to see one other 12 months of out-performance of commodities and actual property extra broadly.”
Amongst particular commodities, Currie is bullish on oil. Goldman Sachs is forecasting Brent crude, the worldwide benchmark, rising to $85 within the present quarter, but when Iran doesn’t quickly increase output, $95 per barrel sooner or later this 12 months isn’t out of the realm of risk. Add to that, Goldman believes that $100 a barrel may very well be within the offing subsequent 12 months.
“This market has the potential to get very tight going over the course of subsequent 3-6 months,” provides Currie.
Brent crude is at the moment DBC’s third-largest allocation at a weight of 12.26% adopted by West Texas Intermediate futures at 11.7%.
Including to the case for DBC is the truth that the excessive costs of commodities at present aren’t compelling producers to up output. With power commodities and miners emphasizing monetary prudence and higher stability sheets, provides may stay tight, probably offering a catalyst for DBC upside this 12 months.
“Wholesome commodity costs aren’t triggering a provide response that will put a lid on efficiency from right here; whereas $80 oil and $4 copper would typically incentivize a wave of manufacturing, companies are hesitant to make capital outlays within the face of COVID variants and a teetering Chinese language housing market,” according to Seeking Alpha.
The wild card for DBC this 12 months may very well be gold. The ETF delivered the aforementioned stellar 2021 exhibiting with no help from the yellow steel, however commodities specialists imagine that with inflation nonetheless operating excessive, it’s unlikely that gold slumps once more this 12 months. Gold futures account for nearly 8% of the DBC portfolio.
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The opinions and forecasts expressed herein are solely these of Tom Lydon, and should not really come to move. Info on this web site shouldn’t be used or construed as a suggestion to promote, a solicitation of a suggestion to purchase, or a suggestion for any product.