A commodities ETF to allay your inflation fears
Copper, soybeans and crude oil are just a few of the commodities that are rising thanks to inflation fears. Investors can have them all and more with the Direxion Auspice Broad Commodity Strategy ETF (COM).
Inflation fears have added an extra dose of volatility to financial markets lately. With rising commodity prices, commodities offer investors a mechanism to hedge against inflation.
The strength of commodities this year is reflected in the performance of the S&P 500 Index and the Bloomberg Commodity Index. The latter is up from the former by around 8%.
COM seeks to provide a total return greater than that of the Auspice Broad Commodity Index over a full market cycle. The fund is an actively managed ETF that seeks to provide a total return above the index over a full market cycle by actively managing a portfolio of treasury bills, other government securities, money market funds. , cash, other short-term bond funds, corporate fixed income or other highly rated non-government securities, with maturities of up to 12 months.
The Index is a rules-based index that attempts to capture trends in commodity markets. Currently, the sector’s breakdown includes a mix of metals, agriculture and energy.
- A 40 Act, non-K1-generating approach for investing in commodities
- Exposure to 12 commodities which can individually be long or flat (if a short signal is triggered the position is moved to cash)
- The ability to make intra-month position changes based on trends
- Monthly rebalancing based on risk reduction when the allocation of individual components is reduced if volatility exceeds certain predetermined risk levels
- A “smart” contract rollover approach designed to select profitable futures contracts to enter into upon expiration of the current contract
The Inflation Fighter
Rather than holding various commodities as separate positions, having a global fund like COM makes it easier to hedge inflation. As prices start to rise, investors can also look to COM as a diversification tool.
“Because commodity prices generally rise when inflation accelerates, they offer protection against the effects of inflation,” notes an Investopedia article. “Few assets benefit from rising inflation, especially unexpected inflation, but commodities generally do.”
“As the demand for goods and services increases, the price of goods and services increases, as does the price of the products used to produce those goods and services,” the article added. “Futures markets are therefore used as continuous auction markets and as clearing houses for the latest information on supply and demand.”
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