How GCC can Diversify Within Commodities

Goldman Sachs has increased expectations for a 50-basis-point increase to twice this year, once in May and once in June, while Bank of America is forecasting two 50-point increases in June and July as the Fed grapples with bringing surging inflation under control. Citigroup has forecast four 50 basis point hikes this year, the first of which would be in May.

“The Fed has accepted that it is behind the curve and will be emboldened by the resilience of the economy and the financial markets. The remaining question is whether it will be willing to impose serious pain on the economy to rein in inflation,” Bank of America economist Ethan Harris wrote in a note.

Despite the usual inverse nature of commodities and rising interest rates, there are a multitude of potential continuing inflationary pressures occurring globally that could sustain and impact commodity prices. Supply chain impacts are expected to continue through the year, and sudden shortages to the global supply pool of commodities such as wheat, oil, and natural gas driven by the Russia-Ukraine war could have lasting implications.

“Commodities are likely to be impacted by geopolitical tensions in Eastern Europe and persistent supply chain issues as much as by Federal Reserve actions,” said Todd Rosenbluth, head of research for ETF Trends and ETF Database. “This time is likely to be different.”

For investors looking to diversify their portfolios in times of inflation and rising interest rates while also capturing any potential increase in commodities pricing, the WisdomTree Enhanced Commodity Strategy Fund (GCC B) can be an excellent option. GCC has seen net inflows of $83.39 million since the beginning of the year through March 23.

GCC invests in a basket of commodities and bitcoin futures in seeking diversification in assets that are uncorrelated to most equities and fixed income returns. The fund is an actively managed ETF that offers broad exposure to the following commodities sectors: agriculture, energy, industrial metals, and precious metals, mainly via futures contracts. It can also invest up to 5% of its net assets into bitcoin futures contracts, a regulated space under the purview of the CFTC, but it does not invest directly in bitcoin.

The current weighting of GCC is 31.72% to energy, 22.60% to industrial metals, 18.93% to grains (agriculture), 13.91% to precious metals, 6.24% to softs (agriculture) such as cotton and sugar, 3.70% to livestock (agriculture), and 2.91% to bitcoin futures.

GCC carries an expense ratio of 0.55%.

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