When it comes to getting commodities exposure, sometimes putting all your proverbial eggs in one basket can have adverse effects. China’s uneven recovery, for example, could mean that certain commodities could suffer from reduced demand.
One metric of economic growth, China’s manufacturing index, came in below expectations for the month of April. This could mean that China’s re-opening could be losing momentum, which could mean reduced demand for certain commodities.
“The surprise contraction in China’s manufacturing index in April, coming after first quarter growth exceeded expectations, underlines the uneven nature of the recovery in the world’s second-biggest economy,” Reuters reported.
The country’s re-opening following government-mandated lockdowns meant the economy could move forward, and it appeared to be doing so before April’s manufacturing data was released. Now, the positivism surrounding China’s re-opening could be dissipating.
“This is a mixed PMI report and suggests that China’s post-Covid recovery has somewhat lost steam and calls for continued policy support,” said Zhou Hao, chief economist at Guotai Junan International Holdings Ltd, in a Bloomberg News report.
Balance Out China's Uneven Demand
Getting broad commodities exposure can allow a portfolio to balance out the uneven demand, should certain commodities falter during China’s recovery process. For added insurance, an active strategy could also add a layer of investor confidence with exchange traded funds (ETFs) like the Neuberger Berman Commodity Strategy ETF (NBCM ).
NBCM’s active management allows for fluidity when adding commodities exposure. With its active management style, NBCM puts the portfolio holdings in the hands of seasoned portfolio managers, allowing for changes to holdings when market conditions warrant necessary adjustments.
The active management adds a layer of flexibility to an investor’s portfolio, especially given that commodities can be volatile at times. Unlike the Bloomberg index, NBCM’s holdings can be tailored for greater exposure to certain commodities when they exhibit strength, and vice versa when there’s weakness.
Given this, if a slowdown in China’s economic activity warrants safe haven assets like gold, NBCM can add more gold exposure. Given the economic uncertainty, gold is actually the current top holding in the fund’s portfolio of commodities.
The fund invests in commodity-linked derivatives with an active risk-balanced, diversified approach that seeks to minimize the effects of market volatility — which is connected to the commodities market. Tactical exposure adjustments expand potential alpha sources by considering top-down macro variables among commodity sectors and individual commodity outlooks to take advantage of short- and long-term opportunities.
For more news, information, and analysis, visit the Commodities Channel.
