With commodities, active management may be a better bet


EEven with no contribution from gold, the broader commodity complex turned into a banner last year.

With inflation expected to persist for much of the first half of 2022, perhaps longer, expectations are in place that durable assets, including commodities, could post another strong year. The 2022 case for commodities is bolstered by the fact that the consensus is building that gold will rebound this year.

Some market watchers argue that the best way for investors to embrace commodities is through diversified funds that offer the benefits of active management. Enter the WisdomTree Enhanced Commodity Strategy Fund (GCC).

The $226.5 million GCC returned 20% last year, providing investors with a new and more agile alternative to commodity index strategies.

“Investing in commodities requires an active approach. For starters, the two major commodity indices differ significantly. The S&P GSCI Commodity Index is about 50% energy; the Bloomberg Commodity Index is one-third energy, one-third metals and the rest other commodities,” reports Reshma Kapadia for Barron’s.

For its part, GCC focuses on agricultural and energy commodities as well as industrial and precious metals. Currently, the fund is exposed to more than 30 commodities futures contracts in addition to a position at Bloomberg WisdomTree Floating Rate Cash Fund (NYSEArca: USFR).

One of the benefits of active management in commodities is that fund managers can access commodities to which index funds often have little or no exposure, such as lithium and green metals. In addition, GCC stands out as a simple option in an area of ​​active funds that are often too complex.

“Finding an actively managed fund is not as easy as it looks. Most commodity-focused mutual funds tracked by Morningstar are quantitative – they use computer models to find, for example, the best trades based on futures pricing and to exploit arbitrage opportunities between futures contracts of different durations,” according to Barron’s.

In terms of GCC’s flexibility and ability to step in where rival passive funds don’t, the WisdomTree fund can allocate up to 5% of its weight to bitcoin futures. The ETF’s exposure to the largest digital currency is currently 1.67%. This could bolster GCC’s inflation-fighting capabilities, particularly if bitcoin rebounds from its recent plunge and GCC increases exposure to the cryptocurrency.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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