The “Must Own” Sector for 2018

commodity etf

Senior Managing Editor’s Note: For the rest of this week, the editors of Banyan Hill are attending an annual retreat, where we make plans for the rest of the year and beyond on how best to serve the needs of our subscribers in this volatile market. As a result, I thought it was a good time to present you with some of my favorite previously run articles. We will be back on Monday, March 5, with our usual schedule. — Jocelynn Smith

Get ready for the cost of daily life to go up.

As you can see from the chart below, the Commodity Research Bureau (CRB) Index just hit its highest point since 2015.

We need to hedge our daily consumption of staple commodities with an investment. We can do that by owning a commodity ETF. Here's what I recommend.

That’s because the world isn’t looking at natural resources today. Speculators want marijuana, tech, cryptocurrencies … that’s where the giant gains get all the press.

However, staples like food, gasoline and canned goods are likely to get much more expensive over the next couple of years.

The Fundamental Building Blocks

The CRB tracks a basket of commodities: 41% agriculture, 39% energy, 13% industrial metals and 7% precious metals.

These are the fundamental building blocks of our society. They are the stuff that makes our phones, computers and cars. They power the electric grid and fill our grocery store shelves.

And they are all getting more expensive.

The price of copper is up over 50% since October 2016. The price of corn is up 13% since September 2016. The price of gasoline is up more than 100% since February 2016.

That means we need to hedge our daily consumption of those commodities with an investment. We can do that by owning a commodity ETF.

Hedging With a Commodity ETF

The way to do that is through the United States Commodity Index ETF (NYSE: USCI). Since June, USCI rose 17%. Its recent price is near a three-year high.

To put this in perspective, the CRB hit its lowest point in over 20 years in January 2016. It’s only up 28% since then.

Today’s value is roughly the same as the bottom the CRB hit in 2009. Just to get back to the average value from the last 10 years, the index needs to rise 36%.

To climb back to its recent high, it needs to go up over 140%. That seems likely given the last five years of falling prices and declining supplies.

That means, at the very least, we need to own USCI just to offset the rising price of stuff.

Good investing,

Matt Badiali

Editor, Real Wealth Strategist