Commodity-based ETFs to Ease Your Bear Market Woes

By Chris Rowe May 3, 2022 Facebook Logo Twitter Logo Email Logo LinkedIn Logo

In November last year, I said the market was headed down.

And now, we’re well inside a bear market.

In fact, as of Monday, May 2, 2022, the S&P 500 was down -12.82% year to date.

The tech heavy Nasdaq Composite has lost -19.87% of its value this year.

As is typical with every bear market, we’re undergoing some pretty intense volatility.

You shouldn’t expect that volatility to smooth out any time soon.

While the market is tanking, inflation is soaring.

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The Consumer Price Index rose to 8.5% for the year ended March 2022. That was the largest 12-month advance in over 40 years.

And from March 2021 to March 2022, consumer energy prices increased 32%, including a staggering 70% spike in oil prices.

Russia’s attack on Ukraine only served to stoke that fire. And Putin’s war is driving up more than energy prices. 

Russia supplies about a third of the world’s wheat. It’s also one of the largest exporters of raw materials needed to make fertilizers.

You need some relief - a shelter in this storm of inflation and bear markets.

Commodity-based equities can be a great way to ease the pain.

For one thing, the bull market in commodities is well underway, 

And it’ll be with us for quite some time.

You’ll find commodity-based equities in the following sectors: Chemicals, Oil & Coal and Oil Services, Utility Gas and Utility Electric as well as the Metals Non Ferrous, Steel Iron and Precious Metals sectors, among others.

But, selecting and trading multiple stocks for all of those sectors can become overwhelming, especially if you’re a more passive investor. 

Exchange Traded Funds can be an excellent answer.

To find the best commodity-based ETFs, I just went right to the Sector Prophets Pro premium tools.

There, you can find a list of ETFs for each of 45 sectors.

For example, here’s a list of ETFs with exposure to the Precious Metals sector.

Here are 12 commodity-based ETFs you should consider. They can allow you to take advantage of sizable gains in energy, metals, and even agriculture.

Teucrium Corn Fund (CORN):

By trading an index of corn futures contracts, this ETF offers investors an opportunity to invest in one of the world’s most important commodities. After all, there are a plethora of corn-based products. It’s also important to note that corn and wheat often trade in tandem with one another since they can be used interchangeably in certain industrial applications.

Vanguard Materials (VAW):

Straddling the Chemicals, Forest Prods Paper, Precious Metals, Metals Non Ferrous and Steel Iron sectors, the VAW ETF includes stocks from companies that extract or process raw materials. 

iPath Series B Bloomberg Nickel Subindex Total Return (JJN):

The JJN is an Exchange-Traded Notes, or an ETN. An ETN is an unsecured debt security that tracks an underlying index of securities, rather than any physical commodities or equities. In the case of JJN, it seeks a return linked to the Bloomberg Nickel Subindex Total ReturnSM

Nickel has been performing well, and especially as it’s a critical material in the creation of lithium ion batteries used in electric vehicles. And with the sanctions against Russian exports, nickel prices may rise even higher.

VanEck Uranium + Nuclear Energy ETF (NLR):

Nuclear-generated electric plants are on the rise in the world’s efforts to reduce or eliminate the carbon emissions from fossil fueled power plants. The NLR was the first U.S. ETF set to track global nuclear energy. It holds securities in uranium mining and nuclear power plants, including their engineering, construction and maintenance. 

VanEck Steel ETF (XME): 

This ETF invests in stocks and depository receipts of steel companies. The global steel market suffered a supply shortage following the earlier stages of the COVID pandemic. And although it was believed that that supply would likely ease this year, the Russian/Ukrainian war led to a disruption in the supply of pig iron, a major component in steel manufacturing.

Invesco DB Gold Fund (DGL):

This Fund tracks changes in the DBIQ Optimum Yield Gold Index Excess Return and allows investors a way to invest in gold commodities futures. Gold has long been hailed as a hedge against inflation. As late April turned to early May, we’ve seen elevated investor and central bank demand for the yellow stuff. And that’s amid increased geopolitical unrest and resilient demand in Asia.

iShares Silver Trust (SLV):

SLV is actually a “grantor trust” that holds physical silver on behalf of investors. It tracks the prices set by the London Bullion Market Association. Similar to gold, the metal is often sought out as a hedge against inflation and macroeconomic uncertainties.

Other precious metals ETFs that you might consider include: abrdn Physical Palladium Shares ETF (PALL) and the abrdn Physical Platinum Shares ETF (PPLT). Again, we’re seeing the potential for supply shortages in both platinum and palladium due the Russian/Ukrainian war. Both metals are used in the automotive industry, as well as in the medical equipment and fine jewelry industries.

And last but far from least, here are a few of the leading ETFs in the broader Energy sector. As I’ve mentioned many times, Energy is the strongest of the commodity-based equities this year.

United States Oil Fund (USO):

USO primarily invests in listed crude oil futures contracts and other oil-related contracts. Those contracts include sweet crude oil, diesel, heating oil, natural gas and gasoline. 

Energy Select Sector SPDR Fund (XLE):

The XLE supplies broad exposure to Energy. Its top holdings include Exxon Mobil Corp. (XOM), Chevron Corp (CVX), EOG Resources (EOG), ConocoPhillips (COP) and even Oil Services sector member, Schlumberger (SLB).

A member of the Auto Parts sector, the Global X Lithium & Battery Tech ETF (LIT) is the world’s first lithium ETF. Lithium is essential to the production of the lithium ion batteries used in EVs, as well as in renewable energy storage and mobile devices. 

There you have it, a full dozen ETFs that cover wide ranging physical commodities, commodity-based indices and commodity-based equities. 

Chris Rowe

Founder and CEO, True Market Insiders