Commodities become best performing asset class as crypto magic fades

by 24 Apr, 2018

Forget cryptocurrencies for now – the old guard is back in town. Commodities have overtaken cryptos and equities in both emerging and developed markets to become the most successful asset class so far this year for investors. The rest of the year looks equally bright too.

Figures from Bank of America Merrill Lynch show commodities producing an annualised return of 22.7% year-to-date. If the commodity sector keeps going at its current pace, 2018 will be its best year returns-wise since 2003. According to the most recent “Asset Quilt of Total Returns” put together by the bank, gold came in at second place, totalling 11.6% returns on an annualized basis. 

The 2 biggest factors driving the rise are the resurgence of higher oil prices thanks to OPEC cuts to production, as well as anticipated metal demand due to the rise of renewable energy, where base metals like lithium and cobalt play a large part in certain batteries, magnets and other items used to generate electricity. 

The gains for commodities are even more impressive given the context – with tussling between the US and China over trade and Trump’s aluminium and steel tariffs creating plenty of volatility in asset prices. However this geopolitical tension has obviously benefitted gold prices, which tend to rise when investors are looking to put their money into safe havens due to unfavourable market conditions.

Some experts are highlighting that now could be a better time than ever to invest in commodities or the funds which hold them, especially given that stocks look so expensive in comparison. Frank Holmes of U.S. Global Investors wrote: “Since the commodities supercycle unwound nearly 10 years ago, many investors have been waiting for the right conditions to trigger mean reversion and lift prices. I believe those conditions are either firmly in place right now or, at the very least, in their early stages.”

Holmes noted that thanks to a weaker US Dollar, expectations of higher inflation, overvalued stocks and bearish sentiment for the markets from ultra-high net worth individuals (revealed in a recent J.P. Morgan survey), the investment case for commodities, gold and energy is “more compelling than at any other time in recent memory.”

He’s not alone in this thought process. As Invstr highlighted in December last year, Goldman Sachs analysts were similarly bullish on commodities, forecasting high demand for metals in particular in the years to come.

The best part of this news is that Invstr users can join in on the action! Remember you can invest in ETF’s (Exchange Traded Funds) which track commodities inside the Invstr Portfolio, including the USCI – United States Commodity Index Fund. Find out about more about the Portfolio feature here.

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