Circle Squared Alternative Investments’ Jeff Sica is anticipating positive market indicators following Trump’s election win.
It may be time to scoop up commodities, as higher inflation potentially looms under a Trump administration and the out-of-favor asset class underperforms stocks for a second year.
The Bloomberg Commodity Index, a leading gauge, is down 2% this year against the 25% gain in the S&P 500 index. That comes after a 13% drop in 2023, when the equity benchmark returned 26%.
Most retail investors have little or no direct exposure to commodities, even as so-called alternatives like private equity, real estate, and private credit prove increasingly popular with wealthy individuals. A Goldman Sachs survey of family offices—ultrahigh-net-worth families that manage their own money—found that they had just a 1% allocation to commodities, against 26% for private equity.
It’s estimated that $250 billion in various strategies, including mutual funds and exchange-traded funds, are devoted to commodities, less than 0.5% of the $50-trillion-plus market value of the S&P 500.
WASHINGTON, DC – NOVEMBER 13: U.S. President-elect Donald Trump speaks at a House Republicans Conference meeting at the Hyatt Regency on Capitol Hill on November 13, 2024 in Washington, DC. As is tradition with incoming presidents, Trump is traveling (Allison Robbert-Pool/Getty Images / Getty Images)
But there are reasons to believe that commodities could perform better in the future, particularly if Donald Trump follows through on election promises regarding tariffs, which could spur higher prices.
BITCOIN WHALE ETF SOARS AS CRYPTO RACES
“Commodities are an inflation hedge and a diversification tool,” says Kathy Kriskey, the commodities strategist at Invesco. “We could be entering an inflationary period, and commodities are the most efficient hedge against inflation.”
Kriskey doesn’t have to be right about inflation for commodities to be worth owning—that’s the point of a hedge. A 5% allocation, her recommended amount, could have helped in years like 2022, when the S&P 500 was down 19% and the Bloomberg Commodity Index rose 14%. Rather than a standard 60-40 mix of stocks and bonds, a 60-35-5 portfolio that includes commodities could be a good approach in the coming years.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| GLD | SPDR GOLD SHARES TRUST – USD ACC | 241.09 | +4.50 | +1.90% |
| GOLD | BARRICK GOLD CORP. | 17.20 | +0.55 | +3.30% |
| NEM | NEWMONT CORP. | 42.36 | +1.43 | +3.49% |
GOLD ETFS ARE FINALLY JOINING THE PARTY
Many investors play commodities through resource producers, mainly energy stocks, but there also is a role for direct commodity exposure. It has been far better, for instance, to buy gold or gold ETFs like SPDR Gold Trust in the past five years than leading miners Barrick Gold and Newmont.
Investors can play commodities through broad ETFs or mutual funds. One benefit of the funds is that they can offer yields of 2% to 4% if they…
Read More: Commodities are a good option right now for investors