The forthcoming election year could spark a wave of volatility in the equities market, putting the need for alternative assets at the forefront. One of those investors should consider is agricultural commodities.
It’s difficult to fathom given that volatility has been relatively staid ever since 2022’s downtrend amid a succession of rate hikes to fight inflation. With almost a 22% gain in 2023, the S&P 500 rode the uptrend through relatively calm waters.
“The shift to a low-volatility backdrop has left the gauge near its lowest levels since January 2020 and well below its long-term average of 19.5,” a MarketWatch report noted.
However, that could be the proverbial calm before the storm. In that same MarketWatch report, Adam Turnquist, chief technical analyst at LPL Financial, noted that volatility tends to bottom out during July, but then picks up again, leading towards the election where volatility can reach heightened levels.
This is where agricultural commodities in a portfolio can help smooth out the volatility. Expert insights from Teucrium demonstrated the ability of agricultural commodities to weather the storm as seen in the Teucrium Agricultural Fund Index performance during various market downturns.
“As you can see in the chart below, the Teucrium Agricultural Fund Index has outperformed the S&P 500 TR index in 7 out of 7 of the previous stock market corrections,” said Jake Hanley, Teucrium Managing Director/Senior Portfolio Specialist. “Importantly, diversification does not protect against loss. There were periods when the Agricultural Fund Index posted negative returns. However, those losses were less than the negative returns posted by the S&P 500 TR Index.”
One Fund for Agricultural Commodities
Rather than construct a portfolio that dips into various commodities with multiple positions, investors should look at the Teucrium Agricultural Fund (TAGS ). The fund can apply to both long- and short-term investors. For the former, investors can diversify their portfolios with assets that are uncorrelated with the broad market. That said, TAGS offers a perfect complement to a traditional 60/40 stock/bond portfolio in the convenience of one dynamic ETF.
Short-term traders can also use TAGS to play the volatility of ag commodity prices. As opposed to holding various futures positions in a variety of commodities, TAGS can capture this broad exposure via one fund, thereby reducing the costs of holding more than one position.
Furthermore, TAGS presents itself as a compelling option given its low 0.13% expense ratio.
For more news, information, and analysis, visit the Commodities Channel.
