New ‘super-cycle’ hedges for market burned by supply shocks, inflation

Oil has been a great trade in 2026, with wars between the U.S. and Iran war and Russia-Ukraine resulting in rising crude prices and big profits for opportunistic traders.

Broad-based energy sector ETFs such as XOP are up roughly 40% this year, while ETFs betting directly on the price of oil, like USO, are up a lot more than that. Nothing can come close to the gains made by BWET, a freight ETF that bets directly on the cost of transporting crude around the world, now up over 4,000% this year and about to be extended on the risk spectrum with a version that provides 2x leverage on the same futures contracts (the ETF sponsor filed a registration statement for that leveraged version of the fund this week).

But any abrupt change in geopolitics, such as an agreement between the U.S. and Iran to end the war, and increased oil supply to the market, could erode those gains. One thing that won’t change though is a world investors expect to be hit by recurring supply shocks and persistent inflation. That is leading some investors to think in terms of “super cycles” — trades that reflect a world in which resource demands will continue to grow, but which seek to profit from those themes over longer time periods.

The way to hedge an unpredictable world and stock market is also changing as a result of a bond market that has failed in recent years one of the primary tests it was designed to serve — smoothing out the bumps along the way that stock investors know they will experience.

“60-40 won’t work,” said Tyler Rosenlicht, head of natural resource equities at Cohen & Steers on CNBC’s “ETF Edge” this week, referring to the traditional portfolio design of 60% stocks and 40% bonds.

And that is a concern occurring during a new period of global inflation that by all accounts is going to be difficult to tamp down for the Federal Reserve and other central bankers around the world.

“This is about real assets broadly and the idea you need inflation-sensitive assets in a portfolio,” he said.

Rosenlicht manages the Cohen & Steers Natural Resources Active ETF (CSNR), which has $123 million in assets and charges an expense ratio of 0.50% annually. The fund is up 22% year-to-date, according to Morningstar data.

Rosenlicht said oil is an important story, “but it’s not the only thing. It is a big broad regime change,” he said of natural resource-constraints in a world in which demand is accelerating.

“Bonds just aren’t the hedge they used to be and in an inflationary environment, yields are going up,” said Adam Patti, CEO of VistaShares on “ETF Edge.”

“The problem with oil and gas is the volatility, not the direction. It’s so headline-driven,” he said.

He pointed to the record diesel prices as a better signal of the bigger global macroeconomic story. “That’s what drives industry and provides inflationary pressure on goods and services, and that’s where we’re seeing prices sustained at much higher levels, and it’s not quite as volatile as oil and gas, which is more…