Rising commodity price

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  • #82475
    sylpha
    Participant

    Hello there,

    Is there a strategy/portfolio could benefit from rising commodity and energy price? I am not aware of any strategy buying commodity ETFs (maybe just I don’t come across them). Thanks.

    #82487
    Mark Vincent
    Participant

    The closest is GSRS but it’s not even in commodities right now. The problem is over the long term energy and commodities asset correlations do not benefit equity returns and sharp ratios like Gold and silver. The volatility is also high and that creates other problems. The best you can do is build your own strategy in QT. I have 3 different strategies I use.

    – Metals
    – Energy
    – Commodities

    There is some overlap depending on ETF you use to create them. I also use highly liquid ETF you can find almost any commodity but many are low liquidity (Vol<100k).

    These 3 I used in a strategy of strategy just like LI Strategy of Strategy.

    Cheers,
    MV

    #82488
    Mark Vincent
    Participant

    Sorry that should have said:

    The problem is over the long term energy and commodities asset correlations do not benefit equity returns and sharp ratios like Gold and Bonds.

    Not Silver.

    #82512

    I already tried to build strategies which selects the top ETFs of the below list, I could however never find any strategy which really worked. The reason was the very high correlation of all commodities and the fact that most of them have commodity Futures as underlying which are most of the time in contango due to high storage costs. Due to this contango each future roll is expensive and if you look at these commodity ETF charts, then they all tend to go down over longer periods.
    Regards Frank

    GLD, Gold
    SLV, Silver
    JJC, copper
    USO, US Oil
    PPLT, Platinum
    PLTM, Platinum
    UNG, US natural gas
    CORN, corn
    SOYB, soya bean
    WEAT, wheat
    COW, livestock
    JO, coffee
    KRBN, carbon
    NIB, cocoa
    JJN, nickel
    BAL, cotton
    JJU, aluminium
    JJT, tin
    GRU, grain
    LD, lead
    FUE, Biofuel

    #82519
    Mark Vincent
    Participant

    Frank,

    What if your hypothesis is that hard assets will rise? I just use the same type of Strategy as 0 LI strategies of strategies and add Metals, Energy and commodities. During 2020 the strategy was rarely in these 3 hard assets but during 2021 it has always been in at least one of them. The system is picking them purely on it’s price action. When the price action goes down the system won’t pick any of my hard asset models and picks the other LI strategies.

    I think this is cherry picking winning assets but if hard assets continue to rise I will benefit if they dont’t the strategy will kick me out without to much of a loss.

    Cheers,
    MV

    #82520

    You are right, in combination with other asset classes commodities may be a good diversification. This way for most of the time you will be mainly invested in equity but you can still profit from the relatively short periods commodity prices are rising. In order to reduce volatility a good addition are ETFs like DBC, DBB and DBP.
    Some of the above commodities im my list have very high volatilities 40+% so that you should use SRRP mode (risk parity) if you do a Top x commodities strategy. In general strategies work best if the different assets have similar volatilities.

    #82522
    Mark Vincent
    Participant

    Thanks Frank,

    I took your advice for my energy strategy using the following Symbols:

    Name Ticker
    First Trust Natural Gas ETF FCG
    United States Brent Oil BNO
    United States Oil USO
    SPDR S&P Oil&Gas Explor&Prodtn XOP

    I changed it to SRRP works much better.

    My next question is what criteria do you use to add or subtract a asset from a strategy? You already mentioned similar volatilities. Do you look for high correlation between assets or low? What other criteria do you look for? Is it more of a Hypothesis that these assets will rise in price?

    Cheers,
    MV

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