It seems that commodities are on a tear, especially industrial metals. Metals are riding high on favorable demand-supply dynamics and a subdued greenback. Powershares DB US Dollar Index Bullish Fund UUP is off about 5.5% so far this year (as of Dec 11, 2017). Since most commodities are priced in the greenback, a dip in the U.S. dollar bodes well for metal investing (see all Industrial Metals ETFs here).
Plus, an uptick in global growth has added to the metal’s strength. Be it developed economies or the developing ones, all are exhibiting harmonized growth. Industrial metals, which have long been in stagnation, are thus now in a sweet spot.
Reduction in output has finally adjusted excess supplies, leading to higher prices for industrial metals. PowerShares DB Base Metals ETF DBB is up 21.5% so far this year (read: Should You Follow Hedge Funds and Play Metal ETFs?).
Will 2018 Be Great for Commodities?
Goldman is also bullish on commodities going into 2018. Impressive demand-supply balance is noticed from crude to cotton and gasoline to industrial metals, as per Goldman. The bank expects “15% returns next year from the roll yield in oil and expects other metals to join zinc in backwardation.”
Among industrial metals, Goldman favors copper and is bearish on aluminum. While demand is likely to be strong for both metals, the difference in the supply picture will result in different prospects for metals.
Below we highlight a few commodity ETFs that were relatively steady in the last one month and may surge ahead.
ELEMENTS Linked to the Rogers International Commodity Index - Metals Total Return RJZ
The underlying index of the product — the Rogers International Commodity Index Metals Total Return — represents the value of a basket of 10 metals commodity futures contracts and is a Subindex of the Rogers International Commodity Index Total Return.
iPath Pure Beta Nickel ETN NINI
The underlying index of the product — the Barclays (LON:BARC) Nickel Pure Beta TR Index — looks to track returns that are potentially available through an unleveraged investment in the futures contracts in the nickel markets (read: ETF Scorecard for September 2017).
iPath Bloomberg Tin Subindex Total Return ETN JJT
The underlying index of the product — the Bloomberg Tin Subindex Total Return — offers returns that are potentially available through an unleveraged investment in the futures contracts on tin.
First Trust Alternative Absolute Return Strategy ETF FAAR
The active fund seeks to achieve long-term total returns using a long/short commodities strategy (read: 4 ETF Ways to Hedge Against Volatility).
Elkhorn Commodity Rotation Strategy ETF DWAC
The fund is a momentum-based, actively managed ETF that picks five commodities with the highest relative strength from a group of 21 commodities. The portfolio is designed to be a momentum-based commodity strategy with a modified dynamic roll methodology. It charges 99 bps in fees.
Bottom Line
While demand-supply dynamics may favor these products, investors should note that hawkish Fed policies can deter the rising momentum in commodity ETFs.
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PWRSH-DB US$ BU (UUP): ETF Research Reports
IPATH-BB TIN (JJT): ETF Research Reports
PWRSH-DB B METL (DBB): ETF Research Reports
IPATH-PB NICKEL (NINI): ETF Research Reports
ELEMT-ROG METAL (RJZ): ETF Research Reports
FT-ALT ABS RET (FAAR): ETF Research Reports
ELKHN-CMDTY RS (DWAC): ETF Research Reports
Original post
Zacks Investment Research