ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Free Cash Flow
    • Future ETFs
    • Global Diversification
    • Gold/Silver/Critical Minerals
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Megatrends
    • Modern Alpha
    • Multi-Asset
    • Night Effect
    • Portfolio Strategies
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • Company
    • About Us
    • Swag Store
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. ETF Education Channel
  2. How to Allocate Commodities in Portfolios
ETF Education Channel
Share

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should allocate to commodities.

Conventional wisdom often dictates that the ideal percentage is 5% to 10%. However, at times when bonds and equities are slumping and inflation is high — the exact scenario investors are contending with today — it’s appropriate to challenge conventional wisdom.

Performance suggests that this is the correct course of action. For example, the Invesco DB Commodity Index Tracking Fund (DBC A) is up more than 30% year-to-date while the S&P 500 and nearly every bond exchange traded fund on the market are in the red.

“Rising inflation generated a compelling backdrop for various commodities during 2021. The price of WTI crude oil began 2021 at roughly $48 per barrel and climbed to $75 per barrel by year-end,” note Morningstar analysts Amy Arnott and Emory Zink.

Of course, high oil prices help the commodities complex because crude is one of the most consumed and heavily traded commodities, but it’s not the only driver of DBC upside. The Invesco fund, which follows the DBIQ Optimum Yield Diversified Commodity Index Excess Return, features exposure to the futures contracts of 14 heavily traded commodities. That diversity makes the fund appropriate for a broad swath of investors.

“Historically, commodities have generally been a strong hedge against inflation, but it is not clear whether this will hold true in the future. Over the past two years, major commodity indexes have actually had a slight negative correlation with inflation,” add the Morningstar analysts.

Another advantage of DBC’s diversified approach, which potentially speaks to allocating a higher percentage of a portfolio to the fund when inflation is high, is that diversity ensures some reduction in correlations. For example, oil and copper correlations to stocks ticked higher last year, but gold and other commodities represented in DBC did not.

“During inflation spikes, commodities often provide diversification value and deserve consideration in a portfolio with a variety of potential market environments top of mind. Notably, gold continues to fill a valuable role as a buffer against equity market volatility,” conclude the Morningstar analysts.

With about 15% of its weight allocated to agriculture commodities, DBC also offers an effective avenue for profiting from food price inflation while avoiding the volatility that often comes along with investing in individual soft commodities futures contracts.

For more news, information, and strategy, visit the ETF Education Channel.

Loading Articles...
Help & Info
  • Contact Us
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X