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Commodity prices have been in rally mode since March of 2020. The Bloomberg Commodity Index rose by 27.1% in 2021, the strongest calendar year increase in over 20 years, and the second strongest year since the 1970s (see chart below). So far in 2022, the index is up another 15.5% (as of 2/28). However, recent gains follow a decade of dismal performance. Prior to 2021, 7 of the 10 calendar years through 2020 delivered negative returns. In our view, there are good reasons to believe that commodity prices may continue to trend higher in the months and years ahead. In the near-term, we expect inflationary pressures fueled by loose monetary policy and the recent unprecedented expansion of the money supply in the U.S. to provide a strong tailwind for commodity prices, especially if demand for goods and services rebounds with the lifting of Covid pandemic restrictions. Geopolitical tensions and the conflict between Russia and Ukraine may also play a role in raising commodity prices. Longer-term, a transition to renewable energy and electric vehicles, along with necessary investments in related infrastructure, may fuel a substantial increase in demand for certain raw materials. We believe broad commodities ETFs, such as the First Trust Global Tactical Commodity Strategy Fund (FTGC), may help investors benefit from these trends.
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Posted on Thursday, March 3, 2022 @ 9:27 AM
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