Think Commodities Have More Room To Run? 2 Additional ETFs To Consider

Think Commodities Have More Room To Run? 2 Additional ETFs To Consider  | Aug 11, 2020 04:11

Commodities are attracting interest given the wild moves we've seen in the market throughout 2020. From a dramatic surge in value from silver and all-time highs in gold to increased demand for orange juice and crude oil plunging to a low of negative $40.32 per barrel April 20, it's no wonder investors are taking note. 

We'll pick up from where we left off in yesterday's article with two more ETFs that offer access to commodities through exchange-traded funds (ETFs).

After breaking down key considerations for investing in ETFs composed of commodities futures contracts yesterday, today we'll look at one more such ETF, covering a diverse group of commodities. As well, given the incredible run-up in silver, we'll examine a fund that retains physical holdings of the precious metal.

1. Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF

  • Current Price: $19.92
  • 52-week range: $16.36-$23.11
  • Dividend Yield: 1.68%
  • Dividend Frequency: Annual
  • Expense Ratio: 0.25% per year, or $25 on a $10,000 investment.

The Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF (NYSE:BCI) is actively managed and also tracks the Bloomberg Commodity Index Total ReturnSM index.

The benchmark index consists of 23 commodities which are determined each year based 2/3 on liquidity and 1/3 on dollar-adjusted production data. Weighting caps (i.e., 33%) are also applied to limit concentration in a particular sector.

BCI Weekly Chart

BCI’s sectoral holdings (by weighting) include Agriculture (29.07%), Energy (27.44%), Precious Metals (22.48%), Industrial Metals (15.77%), and Livestock (5.24%).

Year-to-date (YTD), the fund is down about 12%. However, since hitting a 52-week low in March, BCI has soared about 25%.

A range of factors have been supporting particular commodity prices higher in recent weeks including US dollar weakness, improved demand from China, production cuts, supply disruptions and a potential vaccine for the novel coronavirus.

Gold, silver, and copper, orange juice and cocoa are among the list of commodities whose prices are up so far in 2020. On the other end of the spectrum are cotton, coffee, and especially oil prices.

Although oil prices have risen since the sharp declines in March and April, YTD, they are still down considerably. At the start of 2020, both global benchmark Brent crude and US benchmark West Texas Intermediate (WTI) prices were above $60 per barrel, while they are currently at $45.23 and $42.30 respectively.  

As of today, BCI's top five holdings are gold 100 oz. futures (18.02), copper futures (7.86%), natural gas futures (7.65%), soybeans Futures (6.09%) and corn futures (5.99%). Potential investors should study the various risk/return profiles, especially regarding roll-over yields, associated with investing in futures contracts.

2. Aberdeen Standard Physical Silver Shares ETF

  • Current Price: $28.06
  • 52-week range: $11.30-$28.44
  • Dividend Yield: N/A
  • Expense Ratio: 0.30% per year, or $30 on a $10,000 investment.

Aberdeen Standard Physical Silver Shares ETF (NYSE:SIVR) reflects the performance of the price of silver bullion. It holds the allocated physical silver bullion bars stored in secure vaults in London, UK. There is no rolling-over as the fund does not own futures contracts.

The metal is priced off the London Bullion Market Association's (LBMA) specifications for "Good Delivery," an international benchmark for the pricing of physical silver.

As a precious metal, silver is used as an investment medium in the form of bullion, coins, jewelry or utensils. Due to the metal’s characteristics, half of the annual demand for the white metals comes from use in industrial production.

The rush into silver in 2020, in particular, has been driven by a combination of factors, such as historically-low interest rates, a weaker US dollar, growing concerns over a second-wave of COVID-19 cases, heightened US-China tensions and the upcoming US Presidential election.

SIVR Weekly Chart

So far in the year, the fund is up 62.01%. It hit a 52-week high on Aug. 10, 2020. Although there may be short-term profit-taking in silver prices and hence SIVR, we're still bullish on the bullion.

Bottom Line

Several factors may affect the price of a given commodity, such as the supply and demand of that commodity, currency fluctuations, geopolitical developments as well as economic growth. Commodity prices, especially raw material prices, and the US dollar typically have an inverse relationship. Those investors who believe there might be further tailwinds to support commodity prices in the rest of the year may want to pay attention to commodity ETFs.

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