According to the Bureau of Labor Statistics, the inflation rate increased by 8.3% in April, exceeding an 8.1% estimate. A significant rise in the prices of gasoline, wheat, and other commodities has contributed to skyrocketing inflation. Furthermore, amid the Russia-Ukraine war and deepening supply chain issues, inflation is forecasted to remain elevated in the coming months. In addition, a surprise GDP contraction (a decline of 1.4% in the first quarter) coupled with 40-year high inflation represent a risk of stagflation.
Ben Bernake, former Federal Reserve chair, has warned that a period of high prices and unemployment, and low economic growth could push the U.S. economy toward stagflation for the first time since the 1970s. Because the prices of underlying commodities are surging, commodity ETFs are considered attractive investments because they can potentially outperform equities and serve as inflationary hedges.
Given this backdrop, we think commodity ETFs iShares S&P GSCI Commodity-Indexed Trust (GSG), First Trust Global Tactical Commodity Strategy Fund (FTGC), and KraneShares Global Carbon Strategy ETF (KRBN) could be ideal bets amid the stagflation risks.
iShares S&P GSCI Commodity-Indexed Trust (GSG)
GSG offers broad exposure to a production weighted index of front-month commodities through index futures contracts. The commodities, including crude oil, natural gas, and other energy, make up to 70% of the ETF’s exposure, meaning that metals and livestock are under-represented in this fund. It offers excellent coverage to plain vanilla broad commodities.
GSG tracks the S&P GSCI(R) Total Return Index. It has an 0.85% expense ratio compared with the 0.76% category average. GSG has $2.10 billion in assets under management. GSG’s fund flows came in at $42.91 million over the past six months and $18.54 million over the past year. It has an 0.89 beta.
GSG has gained 40.2% in price over the past six months to close yesterday’s trading session at $24.46. It has gained 57.6% over the past year. It has a NAV of $24.56 as of May 17, 2022.
GSG’s strong fundamentals are reflected in its POWR Ratings. The ETF has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
GSG has a Trade grade and Buy & Hold grade of A, and a Peer grade of B. The fund is ranked #6 among 117 ETFs in the A-rated Commodity ETFs group. To access all the GSG POWR Ratings, click here.
First Trust Global Tactical Commodity Strategy Fund (FTGC)
FTGC is an actively managed fund that provides broad exposure to commodities through futures contracts. The fund gains its exposure to commodities through its holdings in a Cayman Islands-based subsidiary but does not directly own futures contracts. FTGC shorts futures and holds other commodity ETFs and other structured vehicles tied to commodities. It is structured as a 1940 Act open-ended fund.
FTGC has a 0.95% expense ratio compared with the 0.76% category average. It has $4.75 billion in assets under management. It has a total of three holdings. FTGC’s major holdings include the U.S. Dollar, with 74.44% weighting, followed by MUTUAL FUND (OTHER) and Morgan Stanley Institutional Liquidity Funds Treasury Portfolio Institutional (MISXX) with 23.01% and 0.55% weightings, respectively. FTGC’s fund flows came in at $359.42 million over the past month and 2.16 billion over the past six months. FTGC has a 0.52 beta.
FTGC has gained 26.7% in price year-to-date and 25.3% over the past year to close the last trading session at $29.29. It had a NAV of $29.32 as of May 17, 2022.
FTGC’s strong outlook is reflected in its POWR Ratings. The ETF has an overall A rating, which translates to Strong Buy in our proprietary rating system.
FTGC has an A for Trade grade and Buy & Hold grade. Among the 117 ETFs in the Commodity ETFs group, it is ranked #2. Click here to get additional POWR Ratings (Peer grade) for FTGC.
KraneShares Global Carbon Strategy ETF (KRBN)
The fund provides broad exposure to cap-and-trade carbon allowances by tracking the most traded carbon credit futures contracts. It covers three major European and North American cap-and-trade programs: European Union Allowances (EUA), California Carbon Allowances (CCA), and the Regional Greenhouse Gas Initiative (RGGI). In addition, the fund utilizes a Cayman Island subsidiary and may hold ultra-short-term, investment-grade fixed income securities as collateral.
KRBN tracks HIS market Carbon Global Index. It has a 0.79% expense ratio compared to the 0.76% category average. It has a total of three holdings. The fund’s major holdings include EQUITY OTHER with 64.38% weighting, the U.S. Dollar with 30.01% weighting, and Schwab Short-Term US Treasury ETF (SCHO) at 5.62%. It has $1.30 billion in assets under management. Over the past year, KRBN’s fund flows came in at $666.09 million, while its NAV was $49.27 as of May 16, 2022.
The ETF pays a $0.25 dividend annually, yielding 0.5% at the current price. Over the past year, KRBN has gained 36.7% to close the last trading session at $49.75. It has a 1.21 beta.
KRBN’s POWR Ratings reflect a strong outlook. The ETF has an overall B grade, which equates to Buy in our proprietary rating system.
KRBN has an A grade for Trade and a B grade for Buy & Hold. The fund is ranked #41 in the same group. To access the remaining KRBN ratings (Peer grade), click here.
GSG shares were trading at $23.98 per share on Wednesday afternoon, down $0.48 (-1.96%). Year-to-date, GSG has gained 40.15%, versus a -16.43% rise in the benchmark S&P 500 index during the same period.
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More…