Hard assets and commodity prices are rising as loose monetary policies threaten to devalue currencies and heat up inflation. With Goldman Sachs projecting an 18% rally in commodities over the next year, investors could take a look at commodity exchange traded funds to follow the "vampire squid's" bullish view.
Recently, analysts at Goldman Sachs projected an 18.2% return for the broad basket of commodities as reflected by the S&P GSCI Enhanced Commodity Index over the next 12 months, and estimated the index to gain 9% over the fourth quarter, reports Claudia Assis for MarketWatch.
In comparison, Goldman calculated a 9% increase in equities, a 2% rise for five-year corporate bonds and a 3% drop in 10-year Treasuries over the next 12 months.
Closely watched Goldman highlighted energy and industrial metals as the top performers for the next 12 months, with a 26.5% rise in energy prices, a 10% increase in industrial metals and a 6% gain for precious metals.
"Apart from being attractive in its own right, we also continue to see an overweight in commodities as a hedge against the risk of the impact of sharply higher commodity prices on economic growth and other asset classes, if oil supplies were to disappoint against a backdrop of very limited spare capacity," the analysts wrote in a note to clients.
According to Zacks, there are a number of broad commodity ETFs and exchange traded notes available to play Goldman's predictions.
- The Goldman Sachs Connect S&P GSCI Enhanced Commodity ETN (GSC) is an obvious choice, since it tracks the S&P GSCI Enhanced Commodity Index on which the firm is basing its 18.2% projections.
- The iPath S&P GSCI Total Return Index ETN (GSP) tries to reflect the performance of the S&P GSCI Total Return Index, which holds futures contracts on 24 different commodities, with energy 72%, agriculture 18%, and combined allocations to metals 10%, with WTI crude 38%, Brent oil 14%, and natural gas 6% as the top three holdings. GSP has a 0.75% expense ratio. If Goldman's predictions are right, Zacks expects this ETF to return 19% over the next 12 months.
- The iPath Pure Beta S&P GSCI-Weighted ETN (SBV) also tracks the S&P GSCI Total Return Index, but holds futures with varying expiration dates based on the Barclays Capital Pure Beta Series 2 methodology. Currently, allocations include 83% in energy, 12% in agriculture, and 4% in metals, with top holdings WTI crude 41%, Brent oil 19%, and gas oil 8%. SBV has a 0.75% expense ratio. Potential investors should be cautious, as the fund trades with an average daily volume of 2,156. If Goldman's predictions prove accurate, Zacks calculates that this ETF will return 25% over the next 12 months.
- The PowerShares DB Energy Fund (DBE) tracks the DBIQ Optimum Yield Energy Index Excess Return, which tracks five commodities tied to oil and oil-derivatives. Natural gas is 8% of the fund, WTI crude is 21%, RBOB gasoline is 23%, Brent crude is 23%, and heating oil is 24%. DBE has a 0.78% expense ratio. The fund is structured as a limited partnership, so investors may have to fill out a K-1 form come tax season.
GS Connect S&P GSCI Enhanced Commodity ETN
(click image to enlarge)
Max Chen contributed to this article.