The Russian invasion of Ukraine in the first quarter of 2022 became one of the most widely publicized humanitarian crises in recent years, and for good reason. The world has largely reacted in support of the Ukrainian people. In addition to the humanitarian crisis, a couple of narratives have taken shape in international media:
• Some global commodities are in low supply and continued high demand as a result of the invasion. As expected, commodity prices have seen a general upward trend.
• Whispers of a third world war have continually gotten louder. The chances of this are still uncertain, but the narrative has sent a few global markets into significant volatility.
Many are glued to the news outlets as we await regular status updates. Naturally, this is an opportunity for market participants to do what they do best, speculate. Here are a couple of commodity ETFs to keep on your radar as we head into the second quarter of 2022.
United States 12 Month Oil ETF (NYSEARCA: USL)
USL is essentially an exchange-traded security that mimics the price movements of light, sweet crude oil in West Texas. More specifically, USL uses the near month’s futures contract and the 11 months following. These contracts comprise the “12 months” tracked in the fund. Each contract is equally weighted in the price’s calculation.
As we know, Russia’s invasion and the resulting sanctions have sent oil prices upward. Have a look at USL’s three-month performance on a percentage basis:
USL provides investors seamless exposure to oil prices without the need for a commodity futures account. If you expect continued issues in the world’s supply of oil, USL may be a useful vehicle to invest in.
Invesco DB Commodity Index Tracking Fund (NYSEARCA: DBC)
DBC is an index made up of 14 of the most traded and significant physical commodities in the world. Commodities such as crude oil, gold, wheat, corn, gasoline, aluminum, and soybeans are held in the fund’s portfolio. Its top 10 weightings are as follows:
• 13.09%: NY Harbor USLD
• 12.28%: Brent Crude
• 12.17% Gasoline
• 11.28%: WTI Crude
• 7.12%: Gold
• 6.56%: Wheat
• 6.04%: Aluminum
• 5.83%: Soybeans
• 5.69%: Corn
• 5.64%: Natural Gas
The index is up over 43% in the past year alone. Unsurprisingly, it has seen a 15% increase year-to-date. In addition to its positive price action, DBC also provides a $0.25 annual dividend to holders with 160 million shares outstanding and nearly $4 billion in net assets. Its price action is quite correlated to the price of oil, as expected. Compare the three-month chart to USL’s price trend:
DBC is a convenient approach to a diversified commodity portfolio. The ETF allows for access without any approval or account needed for commodities trading. Commodity prices have been a strong narrative recently, and are likely to continue to be so. If you’re bullish, DBC is a well-rounded fund to consider.