interactive investor adds a new ETF to the rated list amid improved outlook for commodities.
interactive investor, the UK’s second-largest direct-to-consumer investment platform, has added a commodity exchange-traded fund (ETF) to its Super 60 rated list amid improved sentiment towards the asset class in recent months.
The addition enhances the alternative asset classes available on Super 60, which also include three property options and a gold ETF and comes in the wake of increased customer demand for commodities.
WisdomTree Enhanced Commodity ETF (LSE:WCOB) has been added to the now 66-strong roster as a Specialist Low-Cost option. It seeks to track the performance, before fees and expenses, of the Optimised Roll Commodity Total Return Index, offering a broad range of 22 commodities across four underlying themes that include industrial metals, precious metals, energy and agriculture. It also aims to outperform the Bloomberg Commodity Index TR over the long term.
The fund invests in US Treasury Bills and uses total return swaps to deliver the index performance. The swaps are collateralised on a daily basis and reset monthly.
Commodities have been in a bear market for more than 10 years. In July 2008, commodities (as measured by Bloomberg Commodity Index) reached their peak and have since lost 40% (in GBP) to 30 April 2021. During the same period, the MSCI World index rose 290%. However, more recently the commodities market is starting to show growing signs of strength, up 35% over 1 year and 14% YTD to 30 April 2021.
Commodities are considered a good source of portfolio diversification, as it shows low correlations with equities and bonds. In addition, the asset class has historically performed in line with the movement of inflation and, as such, is typically viewed as a good hedge against inflation, which has recently become more of a concern among investors.
Dzmitry Lipski, Head of Fund Research, interactive investor, says: “Historically, investors turned to commodities as a source for portfolio diversification and hedge against rising levels of inflation. In fact, commodities have been in a bear market for over a decade.
“There has been an improvement in sentiment towards commodities on the back of structural long-term trends, including economic recovery from the pandemic, inflation fears along with an anticipated continued quantitative easing stimulus, as well as infrastructure spending and hence higher demand for materials. Also, commodities have a cyclical nature and the current point in the market cycle might be an attractive entry opportunity.
“WisdomTree Enhanced Commodity ETF could be a useful and low-cost option – with an ongoing charge of 0.35% - addition to a well-balanced portfolio in this context.
“Currently, its largest individual position is in gold (over 12% as at 28/02/2021), which traditionally is viewed as a hedge in inflationary environment. However, the ETF offers a well-diversified portfolio and its holdings tend to show lower correlation between each other. Oil and gas also represent a sizeable chunk of the portfolio (around 24%).
“The ETF is also well-positioned to benefit from the current market climate. Its effective cost management and lower risk profile gives the strategy a competitive advantage against its peers.”
Super 60, launched over two years ago, includes a range of different asset classes, styles and approaches to suit different investor needs, including a mixture of low-cost, core, income, smaller company and adventurous options.
It covers the whole universe and incorporates funds, investment trusts, active and passive options (including ETFs) and alternative assets. The full methodology can be viewed on the ii website.
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