Volatility is inherent in the capital markets and even more so when it comes to price movements in agricultural commodities. That said, investors can prep for volatility by incorporating strategies such as active funds like TILL.
The agricultural markets get bombarded with data that can sway prices one way or another. In recent news, inflation data has been a major catalyst for prices as well as policy moves by the U.S. Federal Reserve, especially with respect to interest rates.
“U.S. inflation data due Tuesday (December 13) will be keenly watched to see whether consumer price rises are continuing to ease and come a day ahead of the Federal Reserve’s interest-rate announcement. The recent slowing in the CPI data has raised hopes that the Fed would soften its attitude to interest-rate rises,” a Market Screener article said. “Thursday (December 15) will also see the Bank of England and the European Central Bank meet to decide on interest rates.”
Macroeconomic moves will dictate how investors want to react: risk-on or risk-off. While it’s difficult to predict investor behavior, one thing is certain, and that’s volatility making an appearance.
“The macro matters in December. Macro-commodity correlations are firmly positive and should remain that way through the end of the calendar year as liquidity drops and our little markets get pushed around by larger year-end investment flows,” Peak Trading .
An Active Option
When markets move in such a fashion where prices can fluctuate up and down in the blink of an eye, the majority of investors don’t have time to monitor them constantly. As such, a passive management strategy can be optimal for a set-it-and-forget-it strategy, but active exchange traded funds (ETFs) are also an option.
An active ETF essentially puts the portfolio management in the hands of a professional. As such, when market conditions warrant a change, holdings can be adjusted to capture more upside or limit the downside.
This strategy is available for agricultural commodities exposure via the , which provides investors with long-only futures price exposure to corn, wheat, soybeans, and sugar. One difference with TILL is that it does not issue a K-1 tax form, but rather a 1099 form.
TILL will hold one futures contract in each of the four markets (corn, wheat, soybeans, and sugar) excluding the front-month (aka spot) contract. As mentioned, TILL is an actively managed fund, giving investors more dynamic exposure to the markets.
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