ETF Trends CEO Tom Lydon discussed the Direxion Auspice Broad Commodity Strategy ETF (COM) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.
COM seeks to provide total returns that exceed the Auspice Broad Commodity Index over a complete market cycle.
COM is actively managed. The Auspice Broad Commodity Index is a rules-based index that utilizes a quantitative methodology to track a diversified portfolio of 12 commodity futures contracts dependent on the historical volatility of that component and the total index value and is independent of the volatility and position of other components. Each holding is then positioned either long or flat, depending on prevailing price trends.
Commodities may provide a valuable diversifying component to any long-term investment portfolio. Why commodities? Inflation protection. Commodities represent a significant portion of the CPI’s volatility, resulting in a positive and often outsized response to inflation.
Ther is support for commodities in the current market environment. It comes from a belief in a genuine, post-pandemic economic recovery, a Fed that will continue to support the recovery with lower interest rates, and a government that’s willing to continue its spending spree.
Commodity Supercycle Talks
At the end of 2020, commodities reached a new low relative to equities. The last decade is indeed characteristic of a “deflationary boom.” Against a backdrop of low or even negative interest rates and sluggish growth, investors rushed to invest in bonds and growth stocks in developed countries, to the detriment of value stocks, emerging countries, and commodities (except for gold). A new commodity “super-cycle” would undoubtedly have major consequences for the performance of the various asset classes. It would mean moving from a deflationary regime to a “reflationary” one.
There’s currently a construction housing boom backed by a belief that there will be a migration of people from crowded urban centers to more rural or suburban areas as a pandemic response. This is reinforced by a Federal Reserve committed to keeping mortgage rates low.
The construction boom was the primary driver of the commodity craze. The U.S. national debt has increased by a staggering 8 trillion dollars, so a rally in inflation hedge assets would certainly make sense in this environment.