Key facts
- Commodities have seen a significant rally, with the Bloomberg Commodity Index up nearly 32% year-to-date.
- Mark Hackett, chief market strategist at Nationwide Investment Management, advises investors to invest in commodity companies rather than futures.
- Hackett suggests investing in companies like oil refiners and producers, as well as gold miners that also produce copper.
- He cautioned against short-term trading in commodities, stating that "commodities don't always act the way you think they should."
- Long-term trends driving commodity demand include the AI boom's reliance on minerals like copper and rising living standards in developing countries.
- Hackett noted that bonds have been moving in the same direction as equities since 2022, making commodities an alternative for portfolio diversification.
Commodities are experiencing a strong period, driven by factors including geopolitical conflicts impacting energy markets, the AI boom's demand for rare earth minerals, and inflation concerns bolstering precious metals. The Bloomberg Commodity Index has returned nearly 32% year-to-date.
Mark Hackett, chief market strategist at Nationwide Investment Management, noted that this strength in commodities may be drawing capital away from the bond market. He believes that many investors are abandoning bonds, a sentiment likely to be echoed on social media as a rationale for buying commodities, though he cautioned against this short-term trading approach.
Hackett, however, is bullish on commodities for the long term, advocating for their inclusion in portfolios due to their low correlation with equities and their potential to protect against market downturns. He advises against trying to time the market or predict short-term price movements in commodities, emphasizing that such attempts have historically led to significant losses for traders.
Instead of trading futures, Hackett suggests investing in companies involved in the commodity supply chain, such as oil refiners, producers like Exxon and Chevron, and maintenance providers. He also points to gold miners, many of whom are significant copper producers, as a way to capitalize on AI-driven demand for minerals. These companies offer more stable valuations based on quarterly revenue and can provide dividend income, with Chevron's yield comparable to short-term Treasuries.
Hackett highlighted that energy companies, which were once largely out of favor, are now ascendant. He noted that while the ideal time to buy such companies might have been when they were undervalued, he still sees value in them even after recent gains, especially given their current small weighting in major indices like the S&P 500.