Niche commodity ETFs start year with double-digit gains

Certain commodities have been on a tear so far this year, with many providing double-digit returns.

The world is about to enter a new commodity supercycle, if many of the big investment houses are to be believed.

Goldman Sachs, for instance, argues that we are about to see a boom in commodity prices comparable to the 1970s. Commodity demand is set to rise, driven by both capital spending from governments as part of the so-called Green Revolution and increased consumer spending thanks to more redistributive economic policies, it argues. 

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On top of that, others argue that investors should get exposure to commodities to provide a hedge against inflation. Thanks to ultra-loose monetary policy around the world and the US Federal Reserve signalling that it will become more tolerant of inflation, it is said that we should soon start to see price rises – and commodities, it is argued, are one way to protect against that.

Time will tell whether these investment theories prove correct in the long term. For now, however, bullishness on commodities is certainly showing up in ETF performance. The Invesco Bloomberg Commodity ETF (LSE:CMOD) for instance, has returned around 5% since the start of the year (in sterling terms).

However, this ETF tracks a broad, diversified basket of commodities. What this does not show is that certain commodities have been on a tear this year, with many providing double-digit returns.

For example, one of the best performers has been the WisdomTree Tin ETC (LSE:TINM), with a return of almost 16% year-to-date. Another strong performer was the WisdomTree Corn ETC (LSE:CORN), which returned 14.2%. It was closely followed by the WisdomTree Petroleum ETC (LSE:AIGO), with a return of slightly over 14%, while the WisdomTree Heating Oil ETC (LSE:HEAT) has produced a return of 13.9%.

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The leveraged ETFs tracking these commodities did even better. For example, the WisdomTree Petroleum 2x Daily Lvrgd ETC (LSE:LPET) has returned just over 29%, while the WisdomTree Corn 2x Daily Leveraged ETC (LSE:LCOR) has returned 28.8%.

Of course, investing in any of these individual commodity ETFs is very high risk – even more so for those using leveraged options. Individual commodity prices can be very volatile. Anyone hoping to ride the commodity supercycle is still better off with either a broad, diversified basket of commodities, or by gaining exposure to the companies involved in the commodity sector.