Commodities are an investment that has been around for a long time. Some would even say they are the first real investment that could have been made. Most retail investors don’t invest into commodities as often as they do with equities or even other alternative assets like cryptocurrency. On the other hand, firms on Wall Street such as Hedge Funds dive deeper into the full plethora of financial instruments and assets. Recently some Hedge Funds changed up their portfolio balance, loading a heavier take in different commodities. So why did this increase occur? Well, the biggest reason is the geopolitical turmoil. The Russia-Ukraine conflict is causing major moves in the markets, especially in commodities like oil and certain metals. Many of these commodities are tied to the energy sector of the market, which is seeing the most net buying from these firms last month compared to other groups of stocks.
While most folks see rising oil prices as a catalyst for rising gas prices and thus a pure financial burden, some investors (especially the institutional kind) see an opportunity to make money. Through trading instruments with the underlying commodity as an asset, millions are made off single trades. For example, the WTI crude oil topped $130 per barrel for a moment last week, and more broadly the S&P 500 energy sector has rallied 30% this year, far outpacing the broader market. But this is obvious for most intermediate investors, so why’s it such as big deal? Well with all smart investments, investors should explore the underlying cause of an equity’s direction. In the case of the energy sector, most of the price direction is driven by a war in which real people are dying and suffering. Some would say such an investment is tainted and immoral, while others would say it is what it is – the world keeps going and Hedge Funds keep investing. On today’s Crunch, I propose this not to impose an opinion, but elucidate the often over-looked moral component of investing. Is the energy boom something you would directly seek to invest in? Or not? Feel free to share your thoughts on the Invstr feed.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.