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The commodities market is hot, with the Bloomberg Commodity Index up nearly 32% this year.
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Mark Hackett, chief market strategist for Nationwide, sees a great long-term future for commodities.
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He cautioned against short-term trading and gave tips on his preferred way to gain exposure.
Commodities are having a moment, and headlines will tell you why: the impact of the wars in Iran and Ukraine-Russia on energy markets, the AI boom’s reliance on a wide range of rare earth minerals, and long-term inflation and sovereign debt concerns bolstering precious metals.
The Bloomberg Commodity Index has returned nearly 32% year to date, and some investors are taking notice.
“Hot money attracts assets,” said Mark Hackett, chief market strategist of Nationwide Investment Management, noting that commodities’ recent strength may be coming at the expense of the bond market.
“I personally think a lot of this sell-off that we’ve seen in bonds in the last couple of weeks is people throwing in the towel on bonds,” Hackett said. He expects to hear this exact logic parroted on TikTok and X as a reason to buy commodities, though he cautioned it’s not “wise.”
That’s not to say he isn’t bullish on commodities for the longer term. He wrote an article in September making the case for commodity exposure in portfolios, citing their relative lack of correlation with equity markets. They can be a way to play long-term trends while protecting against market downturns in a way that bonds don’t seem to do anymore, he said.
While Hackett sees value in commodities investments, he cautioned against making short-term trades. As any commodities trader will tell you, history is littered with firms that fell apart from a failed commodity bet.
“There’s a large graveyard of people who thought they were smart enough to bet on specific moves in energy prices,” Hackett said. Here’s how he suggests investors approach the asset class.
Invest, don’t trade
Don’t try to time the market, because “commodities don’t always act the way you think they should,” Hackett said.
“If you try and pick the top and the bottom of commodities, you’re asking for trouble,” Hackett said, noting that the wide range of traders and investors betting on it means that you are “running against a fickle crowd.”
Look no further than the chaos in oil markets since the US began its war in Iran this February. Investors buying large amounts of oil in March, expecting long-term disruption to oil prices due to the blockade of the Strait, would have had quite a rough summer as prices fell back from their initial surge.