Commodities return best three months since 2009

Jun 3rd, 2016 | By | Category: Commodities

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Commodities have enjoyed their biggest three month gain since 2009, according to a note from S&P Dow Jones Indices. The S&P GSCI (formerly Goldman Sachs Commodity Index) has seen a total return of 9.8% this year-to-date, with commodities now outperforming stocks for the first year since 2007.

Commodities return best three months since 2009

Year-to-date, the total return of the S&P GSCI is 9.8%, and has gained 26.2% off its bottom in February.

While not every broad commodity index has performed as strongly as the S&P GSCI, which is weighted by world production and significantly energy sector-heavy, 2016 has seen a rebound in most commodities from their five-year trend, providing benefits to investors in a range of exchange-traded funds linked to these indices.

Although the industrial metals sector lost 7.1%, posting its worst month in a year, and the precious metals sector lost 6.3% in its first negative month of 2016, the energy sector, currently comprising near 70% of the S&P GSCI, gained 4.6% in May. The three month return for the sector is 30.4%, its biggest three month gain since the period ending in June 2008 when it gained 37.5%. Livestock and agriculture gained 3.2% and 1.3%, respectively in May.

The index has performed particularly strongly since February, enjoying a rally in April  and up 26.2% on its lowest point this year (February).

According to Jodie Gunzberg, Global Head of Commodities and Real Assets at S&P Dow Jones Indices, a driver of the S&P GSCI return has been the roll return (measuring backwardation in the sector), which turned positive in agriculture for the first time since May 2015 and has improved in energy from -5.6% in February to just -1.5% in May. There has not been an increase in roll yield this quickly in energy in seven years, since May 2009.

The iShares S&P GSCI Commodity-Indexed Trust (GSG) is an ETF listed on the NYSE Arca which tracks the S&P GSCI. As of 29 April 2016 the fund has an equity beta of 0.30, highlighting the benefit to portfolio diversification that the ETF may provide. The fund has a total expense ratio (TER) of 0.75%.

Other ETFs covering broad commodity indices include the ETFS All Commodities (AIGC LN) which tracks the Bloomberg Commodity Total Return Index. The index is up 11.1% year-to-date (3 June 2016) and is up 19.7% from its 2016 low in January. The most significant sectors within the index are agriculture (32.3%), energy (29.6%), industrial metals (16.9%) and precious metals (15.9%). The fund has a TER of 0.49%.

The Lyxor Commodities CRB Thomson Reuters/Corecommodity UCITS ETF (CRB) tracks the Thomson Reuters/CoreCommodity CRB Total Return Index. The sector breakdown within the index favours the agricultural (40.4%) and energy (41.1%) sectors. The index has gained 6.8% YTD (as of 2 June 2016) and 21.3% since its 2016 low in February. The fund has a TER of 0.35%.

S&P GSCI Commodity Index compared to S&P 500 Index Historical

The S&P GSCI is outperforming the S&P 500 for the first time since 2007.

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