For much of 2021, we have seen commodity ETFs outperforming other financial markets. Back in January, experts attributed this performance to investors betting that strong economic growth would drive prices for raw goods and materials higher — perhaps at a quicker rate than other markets would recover. This general outlook was reiterated in further analysis in the spring.
Overall, this trend is encouraging for a number of popular commodities, including oil and gas. With a few exceptions, major commodities had a very difficult 2020 as the pandemic halted so much trade and economic activity around the world. Strength in commodity ETFs, however, indicates particularly swift and significant recoveries with respect to these same resources.
Oil and gas, however, had a particularly difficult 2020. So where do related ETFs stand within the broader picture of positive movement? It may surprise some to learn that they’re right in the mix.
The trendiest of commodity ETFs through the first half of 2021 were perhaps those relating to agriculture and livestock. Activity in related industries slowed drastically in 2020, harming specific assets’ value but leaving significant room for improvement. As a result of these circumstances and the recovery we’ve seen thus far, multiple related ETFs have been among the most commonly recommended and closely tracked of the year.
- COMT – COMT is actually valued largely for the breadth of assets it represents — which include oil and gas, as well as precious metals (which comprise another category we’ll touch on here). But agricultural and livestock products like corn and cattle also sway this ETF’s movement significantly. COMT has been a popular recommendation for much of the year and has risen steadily and significantly in value.
- PDBC – PDBC was cited recently as an ETF for inflation — which is to say one to watch for rising prices alongside the general inflation that appears to be resulting from the economic recovery. This is another fairly broad ETF that includes assets relating to precious and industrial metals, as well as energy products. But agriculture is at the center in this case as well, and once again it’s helped to drive steady growth throughout the year.
- CORN – CORN is the most direct agricultural ETF we’ll list here and — as you can tell by the name — tracks corn futures. Corn is a major agricultural commodity that has also seen fairly rapid recovery after a difficult 2020. This wasn’t reflected in CORN’s value shift as rapidly as we saw COMT and PDBC make gains earlier this year, but since late March there has been significant positive momentum.
Other trendy ETFs thus far in 2021 have been those relating to precious metals. This is actually an interesting category because precious metals were among the commodities that did well at the height of the pandemic. These assets have long functioned as investing safe havens, which means investors sometimes flock to them and inflate prices even when markets are crashing. Precious metals thrived for much of 2020, but faltered in the latter months and crashed early in 2021. Since that crash, however, they too have become trendy investments, as is reflected in a few ETFs.
- IAU – IAU, or the iShares Gold Trust, has long been one of the leading ETF options with respect to precious metals, and gold specifically. It has followed the general path of precious metals since the pandemic struck, but proved to be a particularly in-demand investment from early April through June. It fell off thereafter but appears to have picked up quickly again.
- GLD – Like IAU, GLD is always included among the top gold ETFs, and is perhaps the best known of the bunch. It is the symbol for the SPDR Gold Trust ETF, which as of this writing is the largest fund specifically invested in physical gold. And with regard to its appeal in 2021, it has followed more or less the exact pattern just described regarding IAU. Both have managed to be trendy ETFs during recovery despite having thrived for much of the pandemic as well.
The above categories represent major categories that have shown well in the ETF movement in 2021. With agricultural resources, it was perhaps to be expected in connection to recovery; with precious metals, we’re generally accustomed to an upward trajectory over time. Where oil and gas commodities are concerned though, there were many who thought 2020 was so damaging we wouldn’t see positive movement again for years — if ever. So it is somewhat surprising that some gas- and oil-related ETFs have also been trendy options this year.
- USL – USL is effectively an oil ETF, and one of the most high-profile ones available to U.S. investors. It tracks crude oil via futures prices, and thus reflects the state of the market as well as — to some extent — expectations for it. Thus far in 2021, USL’s chart actually looks not unlike those of the agriculture ETFs mentioned above. Save for some early-spring stagnation, we’ve seen steady and significant gains.
- BNO – BNO is another well-known oil ETF and a straightforward one that tracks the spot price of Brent oil. It was actually singled out in some early 2021 ETF predictions that were on the whole somewhat mixed regarding the oil outlook. These predictions suggested that oil could lag even amidst demand recovery — but noted that BNO should be tracked in case of a stronger surge. And sure enough, we’ve seen even steadier (almost uninterrupted) growth with BNO than in USL.
The fact that oil ETFs can slot in right alongside those in other strong categories is encouraging for a commodities market some gave up on in 2020. But it’s not necessarily an indication that all is well for the long term. The companies behind these commodities still face stark needs to adapt that were only exacerbated by the pandemic. They need to practice greater sustainability, they need to advertise that sustainability, and they need to optimize their own operations through ongoing digital transformation. And even if all of these steps are taken, alternative energies are catching up, and could still cut into the long-term strength of commodities in this class.
For now though, and with specific regard to pandemic recovery, oil and gas ETFs are making a strong and encouraging impression.
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