Increased Demand Fuels Commodities Rally
April 15, 2024
Read Time 3 MIN
Energy Sector Fuels Commodities Rebound
The energy sector led all sector gains in Q1 2024 by a wide margin and provided most of the gains for the UBS Constant Maturity Commodity Index (CMCITR), which was up 5.18%. CMCITR outperformed its primary competitor, the Bloomberg Commodity Index (BCOM), by almost 3%.
The continued geopolitical conflicts in Ukraine and the Middle East, along with existing OPEC production cuts, triggered strong energy sector gains. Global demand for oil was also stronger than expected, with the U.S. economy leading the charge. U.S. interest rates and the U.S. dollar rose during the quarter, which are normally a headwind for commodities. Commodities rallied despite the stronger dollar, supply concerns and stronger demand.
Energy’s Gains Reverted 2023’s Losses; Natural Gas Still Struggled
The energy sector gained 10% over the quarter. WTI Crude oil and Brent Crude oil were both up about 12%; gasoil up by 15%, heating oil up by 12%, and unleaded gasoline up by 18%. In March of this year, Ukraine began an attack on Russian energy infrastructure targets, concentrating on oil refineries. This led to global supply concerns for crude oil refined products, heating oil, gasoil or diesel and gasoline.
U.S. natural gas fell sharply in Q1 2024, declining by 14%. The Biden administration stopped approving new LNG export facilities, which has hurt the longer-term outlook for U.S. natural gas. As a result, those natural gas producers have started to cut back on production, which stabilized prices between $1.50 and $2. CMCITR, by design, has a smaller allocation to U.S. natural gas of 3.7% versus BCOM’s 5.9% exposure. This difference was the largest reason for CMCITR’s outperformance versus the benchmark BCOM in the energy sector.
The agriculture sector was up 2% in the quarter, largely driven by cocoa. London cocoa was up 139% and NY cocoa was up 126% by the end of the quarter. Weather problems led to very poor crops in West Africa, the world’s largest producer of cocoa. CMCITR has exposure to both London cocoa and NY cocoa, while BCOM does not invest in cocoa. Sugar and cotton also had sizeable gains in the quarter. These gains offset losses in corn, soybeans, and wheat. CMCITR’s investment in cocoa contributed to the outperformance versus BCOM in the sector.
The industrial metals sector was up about 1%. Copper led the sector gains, which offset losses in aluminum and zinc. Towards the end of Q1 2024, China’s economic performance showed signs of improvement. Should this trend continue, it could potentially support the demand for industrial metals, as China is still the largest consumer of industrial metals.
The precious metals sector was up 7%, led by gold’s 7.5% gain. Geopolitical tensions supported gold prices despite the higher U.S. interest rates and stronger dollar.
The livestock sector was up 10% due to a strong rally in hog prices, which were up 16.5% during the quarter.
Estimated Roll Yield Contribution Q1 2024
Source: Bloomberg. Data as of March 2024. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. It is not possible to invest in an index.
Outlook: Political Conflicts are Still Creating Global Demand for Commodities
Looking ahead to the rest of the year, commodities should benefit from the expected Federal Reserve (Fed) easing later this year. If the Fed begins the easing process, the U.S. dollar and interest rates should fall, triggering stronger global growth and demand for commodities. Additionally, the Russia-Ukraine war looks likely to drag on for a long time, and the Middle East war could expand into wider regional conflict.
Q1 2024 Index Sector Weightings
Source: VanEck, Bloomberg. Data as of March 2024.
Learn more about the VanEck CM Commodity Index Fund and the VanEck CMCI Commodity Strategy ETF (CMCI), which seek to track, before fees and expenses, the CMCITR.
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Disclosures
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third-party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made. Past performance is no guarantee of future results.
The UBS Bloomberg Constant Maturity Commodity Index (CMCITR) is a total return rules-based composite benchmark index diversified across 29 commodity components from within five sectors, specifically energy, precious metals, industrial metals, agricultural and livestock.
Bloomberg Commodity Index (BCOM) provides broad-based exposure to commodities, and no single commodity or commodity sector dominates the index. Rather than being driven by micro-economic events affecting one commodity market or sector, the diversified commodity exposure of BCOM potentially reduces volatility in comparison with non-diversified commodity investments.
UBS AG AND ITS AFFILIATES (“UBS”) DO NOT SPONSOR, ENDORSE, SELL, OR PROMOTE CM COMMODITY INDEX FUND (THE “PRODUCT”). A DECISION TO INVEST IN THE PRODUCT SHOULD NOT BE MADE IN RELIANCE ON ANY OF THE STATEMENTS SET FORTH IN THIS WEBSITE. PROSPECTIVE INVESTORS ARE ADVISED TO MAKE AN INVESTMENT IN THE PRODUCT ONLY AFTER CAREFULLY CONSIDERING THE RISKS ASSOCIATED WITH INVESTING IN THE PRODUCT, AS DETAILED IN THE PROSPECTUS THAT IS PREPARED BY OR ON BEHALF OF VANECK (“LICENSEE”), THE ISSUER OF THE PRODUCT. UBS HAS LICENSED CERTAIN UBS MARKS AND OTHER DATA TO LICENSEE FOR USE IN CONNECTION WITH THE PRODUCT AND THE BRANDING OF THE PRODUCT, BUT UBS IS NOT INVOLVED IN THE CALCULATION OF THE PRODUCT, THE CONSTRUCTION OF THE PRODUCT’S METHODOLOGY OR THE CREATION OF THE PRODUCT, NOR IS UBS INVOLVED IN THE SALE OR OFFERING OF THE PRODUCT, AND UBS DOES NOT MAKE ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE PRODUCT AND DISCLAIMS ANY LIABILITY FOR ANY INACCURACY, ERROR OR DELAY IN, OR OMISSION OF THE DATA.
Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.
VanEck CM Commodity Index Fund: You can lose money by investing in the Fund. Any investment in the Fund should be part of an overall investment program, not a complete program. Commodities are assets that have tangible properties, such as oil, metals, and agriculture. Commodities and commodity-linked derivatives may be affected by overall market movements and other factors that affect the value of a particular industry or commodity, such as weather, disease, embargoes or political or regulatory developments. The value of a commodity-linked derivative is generally based on price movements of a commodity, a commodity futures contract, a commodity index or other economic variables based on the commodity markets. Derivatives use leverage, which may exaggerate a loss. An investment in the Fund may be subject to risks which include, but are not limited to, risks related to active management, commodities and commodity-linked derivatives, commodity regulatory, credit, derivatives counterparty, derivatives, government-related bond, index tracking, industry concentration, investments in money market funds, interest rate, LIBOR replacement, market, operational, and subsidiary investment risk, all of which may adversely affect the Fund. The use of commodity-linked derivatives such as swaps, commodity-linked structured notes and futures entails substantial risks, including risk of loss of a significant portion of their principal value, lack of a secondary market, increased volatility, correlation, liquidity, interest-rate, valuation and tax risks. Gains and losses from speculative positions in derivatives may be much greater than the derivative’s cost. At any time, the risk of loss of any individual security held by the Fund could be significantly higher than 50% of the security’s value. Investment in commodity markets may not be suitable for all investors. The Fund’s investment in commodity-linked derivative instruments may subject the Fund to greater volatility than investment in traditional securities.
VanEck CMCI Commodity Strategy ETF: An investment in the Fund may be subject to risks which include, among others, risks related to investing in the agricultural commodity sector, commodities and commodity-linked instruments, commodities and commodity-linked instruments tax, derivatives counterparty, energy commodity sector, metals commodity sector, U.S. treasury bills, Subsidiary investment, commodity regulatory and tax risks with respect to investments in the Subsidiary, gap, cash transactions, credit, debt securities, interest rate, derivatives, commodity index tracking, repurchase agreements, regulatory, market, operational, authorized participant concentration, new fund, no guarantee of active trading market, trading issues, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and commodity index-related concentration risks, all of which may adversely affect the Fund. The use of commodity-linked derivatives such as swaps, commodity-linked structured notes and futures entails substantial risks, including risk of loss of a significant portion of their principal value, lack of a secondary market, increased volatility, correlation, liquidity, interest-rate, valuation and tax risks. Investment in commodity markets may not be suitable for all investors. The Fund’s investment in commodity-linked derivative instruments may subject the Fund to greater volatility than investment in traditional securities. The level of derivatives counterparty risk may be heightened due to the Fund currently only having a single counterparty available with which to enter into swap contracts on the Index.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© 2024 Van Eck Securities Corporation, Distributor, a wholly-owned subsidiary of Van Eck Associates Corporation.
Related Funds
Disclosures
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third-party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made. Past performance is no guarantee of future results.
The UBS Bloomberg Constant Maturity Commodity Index (CMCITR) is a total return rules-based composite benchmark index diversified across 29 commodity components from within five sectors, specifically energy, precious metals, industrial metals, agricultural and livestock.
Bloomberg Commodity Index (BCOM) provides broad-based exposure to commodities, and no single commodity or commodity sector dominates the index. Rather than being driven by micro-economic events affecting one commodity market or sector, the diversified commodity exposure of BCOM potentially reduces volatility in comparison with non-diversified commodity investments.
UBS AG AND ITS AFFILIATES (“UBS”) DO NOT SPONSOR, ENDORSE, SELL, OR PROMOTE CM COMMODITY INDEX FUND (THE “PRODUCT”). A DECISION TO INVEST IN THE PRODUCT SHOULD NOT BE MADE IN RELIANCE ON ANY OF THE STATEMENTS SET FORTH IN THIS WEBSITE. PROSPECTIVE INVESTORS ARE ADVISED TO MAKE AN INVESTMENT IN THE PRODUCT ONLY AFTER CAREFULLY CONSIDERING THE RISKS ASSOCIATED WITH INVESTING IN THE PRODUCT, AS DETAILED IN THE PROSPECTUS THAT IS PREPARED BY OR ON BEHALF OF VANECK (“LICENSEE”), THE ISSUER OF THE PRODUCT. UBS HAS LICENSED CERTAIN UBS MARKS AND OTHER DATA TO LICENSEE FOR USE IN CONNECTION WITH THE PRODUCT AND THE BRANDING OF THE PRODUCT, BUT UBS IS NOT INVOLVED IN THE CALCULATION OF THE PRODUCT, THE CONSTRUCTION OF THE PRODUCT’S METHODOLOGY OR THE CREATION OF THE PRODUCT, NOR IS UBS INVOLVED IN THE SALE OR OFFERING OF THE PRODUCT, AND UBS DOES NOT MAKE ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE PRODUCT AND DISCLAIMS ANY LIABILITY FOR ANY INACCURACY, ERROR OR DELAY IN, OR OMISSION OF THE DATA.
Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.
VanEck CM Commodity Index Fund: You can lose money by investing in the Fund. Any investment in the Fund should be part of an overall investment program, not a complete program. Commodities are assets that have tangible properties, such as oil, metals, and agriculture. Commodities and commodity-linked derivatives may be affected by overall market movements and other factors that affect the value of a particular industry or commodity, such as weather, disease, embargoes or political or regulatory developments. The value of a commodity-linked derivative is generally based on price movements of a commodity, a commodity futures contract, a commodity index or other economic variables based on the commodity markets. Derivatives use leverage, which may exaggerate a loss. An investment in the Fund may be subject to risks which include, but are not limited to, risks related to active management, commodities and commodity-linked derivatives, commodity regulatory, credit, derivatives counterparty, derivatives, government-related bond, index tracking, industry concentration, investments in money market funds, interest rate, LIBOR replacement, market, operational, and subsidiary investment risk, all of which may adversely affect the Fund. The use of commodity-linked derivatives such as swaps, commodity-linked structured notes and futures entails substantial risks, including risk of loss of a significant portion of their principal value, lack of a secondary market, increased volatility, correlation, liquidity, interest-rate, valuation and tax risks. Gains and losses from speculative positions in derivatives may be much greater than the derivative’s cost. At any time, the risk of loss of any individual security held by the Fund could be significantly higher than 50% of the security’s value. Investment in commodity markets may not be suitable for all investors. The Fund’s investment in commodity-linked derivative instruments may subject the Fund to greater volatility than investment in traditional securities.
VanEck CMCI Commodity Strategy ETF: An investment in the Fund may be subject to risks which include, among others, risks related to investing in the agricultural commodity sector, commodities and commodity-linked instruments, commodities and commodity-linked instruments tax, derivatives counterparty, energy commodity sector, metals commodity sector, U.S. treasury bills, Subsidiary investment, commodity regulatory and tax risks with respect to investments in the Subsidiary, gap, cash transactions, credit, debt securities, interest rate, derivatives, commodity index tracking, repurchase agreements, regulatory, market, operational, authorized participant concentration, new fund, no guarantee of active trading market, trading issues, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and commodity index-related concentration risks, all of which may adversely affect the Fund. The use of commodity-linked derivatives such as swaps, commodity-linked structured notes and futures entails substantial risks, including risk of loss of a significant portion of their principal value, lack of a secondary market, increased volatility, correlation, liquidity, interest-rate, valuation and tax risks. Investment in commodity markets may not be suitable for all investors. The Fund’s investment in commodity-linked derivative instruments may subject the Fund to greater volatility than investment in traditional securities. The level of derivatives counterparty risk may be heightened due to the Fund currently only having a single counterparty available with which to enter into swap contracts on the Index.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© 2024 Van Eck Securities Corporation, Distributor, a wholly-owned subsidiary of Van Eck Associates Corporation.