What commodity works best during an inflationary period? It’s not gold or an agricultural commodity, but research shows that energy can actually thrive amid inflation.
“That’s the conclusion of a research paper written by researchers at hedge fund giant Man Group led by Henry Neville, as well as famed Duke University finance professor Campbell Harvey,” a MarketWatch report said.
“The best performing asset class during eight U.S. inflationary regimes was energy commodities — the Arab oil embargo period makes an outsize impact — but from there, trend strategies produced gains of up to 25% a year,” the report added.
ETF investors can get this hedging component with funds like the Invesco DB Energy Fund (DBE). DBE seeks to track the DBIQ Optimum Yield Energy Index Excess Return, which is intended to reflect the changes in market value of the energy sector.
The index commodities consist of light, sweet crude oil (WTI), heating oil, Brent crude oil, RBOB gasoline, and natural gas. The fund invests in futures contracts in an attempt to track its index.
“Energy stocks have a nice track record of performance during periods of rising consumer prices,” a Forbes article explained, noting various sectors that are ideal plays during inflationary periods. “While expanding economies should bode well for oil demand and pricing, big oil companies also have high operating leverage which helps them deliver higher profit as revenue grows.”
Targeting Oil Directly
For investors who want to target rising oil prices directly as an inflation hedge, there’s an ETF for that as well. As fuel demand continues to soar and push oil prices higher, short-term investors and traders alike can take advantage of the Invesco DB Oil Fund (DBO).
DBO provides the perfect opportunity to get exposure to the current upside in oil prices. Furthermore, investors do not hold direct exposure to the heavy price volatility of holding positions directly in the commodity itself.
Per the fund description, DBO seeks to track the DBIQ Optimum Yield Crude Oil Index Excess Return (DBIQ-OY CL ER), which is intended to reflect the changes in market value of crude oil. The single index commodity consists of light, sweet crude oil (WTI), and the fund invests in futures contracts in an attempt to track its corresponding index.
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