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Navigating an Uneven Market for Commodities ETFs


Commodity exchange traded funds help diversify an investor’s portfolio, but traders can also dive into the market to pick and select potential opportunities while avoiding duds.

According to the Goldman Sachs Group, nickel and palladium are set to outperform in an uneven global economy, reports Glenys Sim for Bloomberg.

“While cyclical recovery tends to see rising commodity demand, prices will likely largely be determined by more structural supply factors,” Goldman Sachs analysts wrote in a note. “Accordingly, not all boats are expected rise with the tide created by continued improvement in global macroeconomic data.”

For instance, Indonesia has banned ore exports, which supported a rally in nickel. [Indonesia Export Ban Lifts Nickel ETNs]

Year-to-date, the iPath Dow Jones-UBS Nickel Total Return Sub-Index ETN (JJN) has increased 33.4% while the iPath Pure Beta Nickel ETN (NINI) gained 32.2%.

Goldman also pointed to supply shortages in aluminum and palladium. Year-to-date, the iPath Dow Jones-UBS Aluminum Subindex Total ReturnSM ETN (JJU) is up 10.2% and iPath Pure Beta Aluminum ETN (FOIL) is 7.8% higher. Meanwhile, the ETFS Physical Palladium Shares (PALL) rose 23.0% so far this year.

The Goldman analysts anticipate nickel, aluminum and palladium markets to run in a supply deficit over the next three years. Morgan Stanley also believes nickel and palladium will continue to advance, with a shortage in nickel next year and industrial demand fundamentals supporting palladium.

On the other hand, Goldman expects copper, oil and soybeans to remain in surplus. Year-to-date, the iPath Dow Jones-UBS Copper Subindex Total Return ETN (JJC) is down 4.3%, United States Oil Fund (USO) is up 6.6% and Teucrium Soybean Fund (SOYB) rose 1.2%.

For more information on the commodities space, visit our commodity ETFs category.