Shunned commodity ETFs starting to ‘perk up’ as Fed watches grain prices

Hello! This week’s ETF Wrap digs into commodity ETFs rising so far this month.

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Exchange-traded funds that provide exposure to commodities are rising lately, but ETF investors have been shunning them after a recent broad correction.

Shares of the Invesco DB Commodity Index Tracking Fund
DBC,
-0.24%
have jumped 7.6% so far this month through Thursday, paring year-to-date losses to a modest 0.9%, according to FactSet data. The Invesco DB Agriculture Fund
DBA,
-0.90%
has risen 4.9% in July, bringing its gains to 9.7% over the same period. 

Commodities ETFs are “a place that is starting to perk up again,” said Todd Sohn, an ETF strategist at Strategas, in a phone interview. Meanwhile, the Invesco DB Commodity Index Tracking Fund and Invesco DB Agriculture Fund have seen outflows this year, he said. 

Investors have pulled $487 million from the Invesco DB Commodity Index Tracking Fund this year, after about $7.5 million of inflows over the past week, according to FactSet data as of July 26. And the Invesco DB Agriculture Fund has seen $302 million of outflows in 2023, including more than $4 million in the past week. 

Both ETFs jumped in 2021 as inflation was climbing, but the Invesco DB Commodity Index Tracking Fund is now recovering from a meaningful correction, according to Sohn. That particular ETF, which broadly tracks commodities in the energy, metals and agriculture sectors via futures contracts, sank about 28% from June 9, 2022 through May of this year, he said. 

A stronger-than-expected economy this year may lead to higher prices for energy and metals, according to Bob Minter, director of ETF investment strategy at abrdn. Federal Reserve staff have taken a forecast for a recession “off the table,” he said by phone, pointing to the outcome of the Fed’s policy meeting on Wednesday. And the Commerce Department on Thursday estimated that U.S. gross domestic product rose at an annual 2.4% pace in the second quarter, stronger growth than economists expected.

The U.S. economy has been resilient as the Fed raises interest rates to combat inflation that remains elevated even as it’s been easing from last year’s June peak.

Read: Fed no longer foresees a U.S. recession — and other things we learned from Powell’s press conference

Fading recession fears may prompt investors to look for stronger commodity fundamentals in the second half of 2023, according to Minter. Low inventories for industrial metals such as copper, aluminum, nickel, zinc and lead may help support a rally, he said.

The abrdn Bloomberg Industrial Metals Strategy K-1 Free ETF
BCIM,
-0.56%
has gained 3.1% this month through Thursday, but it remains down about 10% so far in 2023, according to FactSet data. 

Meanwhile, crude oil prices have jumped in July, with West Texas intermediate crude
CL00,
-0.46%
closing above $80 a barrel on Thursday. And wheat prices have risen this month amid Russia-Ukraine tensions.

Read: U.S. oil benchmark closes above $80 a barrel for first time since April

Also see: Wheat prices gain over 8% as Russia-Ukraine tensions rise after the suspension of the grain deal

Jake Hanley, senior portfolio strategist at Teucrium, said in a phone interview that he has recently fielded more interest from financial advisers in the firm’s exchange-traded fund that provides exposure to wheat
W00,
-0.94%.
 

Shares of the Teucrium Wheat Fund
WEAT,
-0.56%
have surged 9.6% this month through Thursday, according to FactSet data. Still, the fund is down 11.5% this year, with around $13 million in outflows in 2023 as of July 26, according to FactSet data. 

Fed Chair Jerome Powell said Wednesday during his news conference that grain prices went up on Russia’s withdrawal from Black Sea grain deal earlier this month, but “they remain well below their peaks of last spring.” He said the moves seen so far are “not expected to make a significant contribution to U.S. inflation,” but the Fed will be watching the situation “carefully.”

As usual, here’s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.

The good…

Top Performers

%Performance

KraneShares CSI China Internet ETF
KWEB,
-2.16%
7.4

iShares MSCI Brazil ETF
EWZ,
-3.02%
5.5

WisdomTree China ex-State-Owned Enterprises Fund
CXSE,
-1.52%
5.4

iShares MSCI China ETF
MCHI,
-1.45%
5.0

iShares China Large-Cap ETF
FXI,
-1.62%
5.0

Source: FactSet data through Wednesday, July 26. Start date July 20. Excludes ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater

…and the bad

New ETFs

  • Franklin Templeton announced on Thursday the launch of the BrandywineGLOBAL – U.S. Fixed Income ETF
    USFI,
    +0.06%,
    a fund that buys investment-grade and U.S. dollar-denominated fixed-income securities.

  • PGIM said July 26 that it launched the PGIM AAA CLO ETF
    PAAA,
    -0.04%
    to give investors exposure to the growing $1.2 trillion collateralized-loan-obligation market.

  • YieldMax announced on July 25 the launch today of the YieldMax AMZN Option Income Strategy ETF
    AMZY,
    +0.01%,
    “which seeks to generate monthly income via a synthetic covered call strategy on Amazon.com.”

Weekly ETFs reads



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