Commodity ETFs will tell you when we hit peak inflation

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Breaking News: Inflation is on the rise… Obviously we all know this but determining when we are at peak inflation is the key for investors looking to pivot. Commodity ETFs could be a good indicator of when you can make that pivot.

One thing sector or Thematic ETFs are great at doing, is that they give you a very good snapshot of what is happening in the marketplace. While most people don’t get excited over commodity ETFs, (Corn, Grain, Wheat, etc), they can be an excellent indicator of what is taking place in the marketplace and more specifically, where we stand with regard to inflation or peak inflation. Let’s take a look at some commodity ETFs and what they can tell us.

Invesco DB Commodity Index Tracking Fund (DBC)

From the site summary, this Invesco ETF is designed for investors who want a cost-effective and convenient way to invest in commodity futures. The Index is a rules-based index composed of futures contracts on 14 of the most heavily traded and important physical commodities in the world.

What the fund told us?
Year over year the fund is up nearly 50%, 50% on boring old commodities. Yes, back when Fed Chairman James Powell was still talking about transitory inflation, this ETF was banging away on an upward ascent. The high point of the year for this fund was April 18th 2021, at $28.42, and now sits at $27.51.

While the fund was up nearly 50% year over year, the inflation creep has been happening for the last two years. This fund is up nearly 150% over the past two years. Part of the shock no doubt was covid related, but you didn’t need to be the Fed Chair to understand that inflation started hitting in early Feb of 2021.

Invesco DBC Commodity Fund

US Commodity Index Fund (USCI)
From the prospectus, USCI is designed to be a convenient, cost-effective way for investors to access the returns of a portfolio of commodity futures contracts. USCI is listed on NYSE Arca.

What the fund told us?
Much like the DBC the fund is up nearly 50% on the year.

While commodities were the place to be the past two years, commodity ETFs are starting to see some outflows from investors. Teucrium which runs commodity agricultural ETFs is a good benchmark for what is happening in inflation and commodity ETFs. Their funds have seen outward flows much of the past 10 days. Teucrium runs the following funds CORN, CANE, SOYB, WEAT, and TAGS, which are commodity pools regulated by the Commodity Futures Trading Commission.

One Key Takeaway
These funds are trading futures contracts, so they are a bit ahead of the game, so this makes it an even more forward look at what is happening in inflation.


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