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While Bitcoin is one of the most popular investments this year, a less exciting asset class is also on the horizon. Commodities, which include things like gold, soybeans and oil, are second in terms of return on investment after the largest cryptocurrency.
According to YCharts, bitcoin’s surge of more than 51% has been matched by an ETF that tracks a commodity index, which has seen a 28% increase in year-to-date growth. The performance gap between the two classes was even smaller as bitcoin grew 38% while cryptocurrencies grew 33% in late July. In fact, a so-called supercycle has helped put commodities on pace to rank second for 2021 among 17 different major asset classes, including tech stocks, bonds, real estate and more.
Except for a brief appearance in the movie Trading Places, commodities don’t get the same attention that flashier assets like stocks and, more recently, cryptocurrency. Trading as we know it today started thousands of years ago with commodities. These alternative assets can play an important role in balancing the risks of any well-diversified portfolio. Experts recommend that your committees not exceed 3% to 5% in your overall portfolio.
Investors don’t buy and sell commodities like crude oil or corn futures directly. However, they might have money in these types assets that they aren’t aware of. T. Rowe Price, for example, includes commodities in its target date funds. These are popular options in 401(k), retirement plans. Merrill Lynch, on the other hand, recommends commodities to mass-affluent clients.
It’s also easy to invest with ETFs in commodities. According to ETF.com figures, there are 102 of these funds. There are also options that track a specific commodity (like gold), or broader market benchmarks. For example, the ETF in the chart above tracks 14 commodities in the energy and precious metals and agricultural markets. This includes oil, gasoline and zinc as well as corn futures.
Understanding the long-term context is important, even though the short-term returns are great. After a decade of poor returns, commodities are enjoying a good year. In the 10 years 2010-2011, investors lost money in commodities. This is the only asset that has had a negative cumulative return from 2011, according to data.