The stock market had a difficult first half of the year due to investors’ concerns over surging inflation and the consequent interest rate hikes. While the benchmark indexes have witnessed a decent recovery since July, many analysts believe the markets will tumble further on economic and geopolitical concerns.
The consumer price index (CPI) rose 8.5% year-over-year in July, coming in lower than the estimates. While inflation declined in July from the 40-year high of 9.1% hit in June, policymakers may not find this level comfortable. So, the Fed may continue its aggressive interest rate hikes.
Investors can counter this high inflationary environment by investing in commodity ETFs. Since commodity ETFs directly or indirectly invest in commodities such as agricultural goods, natural resources, and precious metals, they benefit from their price increases amid an inflationary environment.
We think United States Natural Gas Fund, LP (UNG), VanEck Uranium+Nuclear Energy ETF (NLR), and Invesco MSCI Global Timber ETF (CUT) are excellent commodity ETFs to invest in right now to hedge one’s portfolio against high inflation.
United States Natural Gas Fund, LP (UNG)
UNG has been launched and managed by United States Commodity Funds LLC. The fund invests in the commodity markets of the United States. It uses future contracts to invest in natural gas. The fund seeks to track daily changes in percentage terms of the price of natural gas delivered at the Henry Hub, Louisiana, as measured by the daily changes in the price of a specified short-term futures contract.
UNG has $529.20 million in assets under management (AUM). Its major holding is natural gas, with a 100% weighting in the fund.
Over the past three months, the ETF’s fund flow has been $43.39 million. The fund has gained 141% year-to-date to close the last trading session at $30.11.
UNG’s POWR Ratings reflect this promising outlook. The ETF has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
UNG has an A for Trade and Peer grade and a B for Buy & Hold. Of the 117 ETFs in the A-rated Commodity ETFs group, UNG is ranked #14.
VanEck Uranium+Nuclear Energy ETF (NLR)
NLR was launched and managed by Van Eck Associates Corporation. The fund invests in stocks of companies operating across energy, oil, gas, and consumable fuels, coal and consumable fuels, uranium ores, utilities, and electric power generation by nuclear fuels sectors. The fund seeks to track the performance of the MVIS Global Uranium & Nuclear Energy Index.
NLR has $51.10 million AUM. Its major holdings include Dominion Energy Inc. (D), with an 8.27% weighting in the fund, followed by Duke Energy Corporation (DUK) at 8.10%, and Constellation Energy Corporation (CEG) at 7.74%. It currently has 26 holdings in total.
The ETF’s 0.60% expense ratio compares to the 0.63% category average. NLR has seen $12.30 million in net inflows over the past six months. NLR has gained 6% in price over the past year to close the last trading session at $56.31.
It’s no surprise that NLR has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system.
In addition, NLR has an A for Trade, Buy & Hold, and Peer grade. In the Commodity ETFs group, NLR is ranked first.
Invesco MSCI Global Timber ETF (CUT)
CUT was launched and is managed by Invesco Capital Management LLC. It invests in stocks of companies operating across materials, paper and forest products, forestry services, forest nurseries and tree seed gathering, timber tracts, lumber manufacturing, drying and finishing timber, wood products, paper products, paper packaging, or timber REIT sectors. The fund seeks to track the performance of the MSCI ACWI IMI Timber Select Capped Index.
CUT has $71.70 million in AUM. Its major holdings include Avery Dennison Corporation (AVY), with a 6.07% weighting in the fund, followed by UPM-Kymmene Oyj (UPMMY) at 5.09%, and Amcor plc (AMCR) at 5.04%. It currently has 75 holdings in total.
Over the past month, the fund has gained 8.6% to close the last trading session at $33.45.
CUT’s POWR Ratings reflect solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system.
CUT has a B grade for Trade, Buy & Hold, and Peer. Within the Commodity ETFs group, CUT is ranked #26.
UNG shares were trading at $30.17 per share on Friday morning, up $0.06 (+0.20%). Year-to-date, UNG has gained 141.55%, versus a -10.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More…
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