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Growth From The Ground Up: A Model ETF Portfolio For An Agriculture And Precious Metals Hedge

Due to uncertainty surrounding global trading conditions and the surging performance of equity investments through the first few months of 2019, traders have struggled to find a compelling upside in the commodity markets this year.

However, March may mark a turning point in the near-term prospects of many raw goods. The prices for oil and metals are still pushing year-to-date highs, while agricultural and soft commodities like soybeans and sugar have bounced from recent lows to cut some of the losses sustained since the U.S.-China tariffs took effect in mid-2018.

Now might be the time to find broad exposure to the commodities markets, and we can use the AI model portfolios on Quantamize to discover which commodity ETFs to be overweight heading into spring. Each Quantamize Q-Folio is rebalanced monthly to best position each investment theme for diversified alpha capture based on the model’s multi-factor analysis

Using Quantamize’s Commodities ETF Model Portfolio, we can see that agricultural and precious metal ETFs represent the portfolio’s top ETF holdings.


Image courtesy of Quantamize

For the soft commodities, the Invesco DB Agricultural Fund (NYSE: DBA) provides fairly broad exposure to an array of heavily traded agriculture goods, although its top holdings are primarily weighted toward cattle, soybean and sugar contracts.


Image courtesy of Quantamize

Each of the Invesco agricultural ETFs top holdings has seen an uptick through March, in part due to positive trade signals and inclement planting weather driving down yield estimates. However, while sugar has made a 50 percent retracement towards its 12-month high, soybeans are struggling to remain consistently above $9 in the face of continuing trade friction between the U.S., a major producer of soybeans, and China, its biggest trading partner.

On the surface, that would make Q-Folio’s weighting in Tecrium Soybean Fund (NYSE: SOYB) somewhat perplexing.


Image courtesy of Quantamize

Both soybeans and SOYB made new 2019 lows midway through March. However, Chinese trade data from January indicates that, in spite of the tariffs, there was a month-over-month increase of more than double the amount of U.S. soybeans imported to China. What’s more, negotiations between the nations’ trade officials have ensured the sale of an additional 10 million tons of soybeans to China, although that won’t likely materialize until a larger agreement to ease trade tensions is reached.

Technically, the recent low coupled with the slow and steady progress on the trade front could help the bean rebound from its early March dip and, ideally, post some positive gains in the coming weeks.

Don’t Forget The Yellow Metal

The third largest weighting in Quantamize’s Commodities ETF Model Portfolio is the SPDR Gold Trust (NYSE:SPDR) ETF, a perfect counterbalance to the trade uncertainty weighing on most of the rest of the commodities market.

Year-to-date, both GLD and gold have been relatively flat. However, gold’s climb through the waning months of 2018 helped it retake levels it hadn’t seen in more than six months. This has led to a recent uptick in redemptions from the fund, which you can see in the ETFs fund flow data, though its six-month flow remains net positive. This makes it an attractive medium-term hedge within the portfolio.


Image courtesy of Quantamize

Overall, the Q-Folio model seems to be bullish on the indications coming from the agricultural sector, while also leaving room for a prolonged battle over trading conditions between the world’s two largest economies. The moral seems to be that the market’s deepest held hopes for a resolution will be rewarded eventually, but don’t bet the farm on it.

Quantamize is a content partner of Benzinga

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