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Investment thesis
In today’s challenging global economic environment, commodities are a crucial asset class that can diversify portfolios and hedge against tail risks. We believe the Aberdeen Standard Bloomberg All Commodity Strategy ETF K-1 Free (NYSEARC:BCI) offers investors with an attractive investment opportunity, thanks to its profitable and diversified structure.
Insight
The BCI ETF tracks the Bloomberg Commodity Index, which includes 23 commodities weighted by trading volume and global production levels. It is a passively managed ETF that is backed by short-term US Treasury bills, generating interest income to support portfolio management. BCI’s “K-1 Free” structure means investors don’t have to worry about the tax implications of investing in futures contracts, as they receive income and dividends through a standard 1099 form, such as with other stocks and ETFs.
Powerful diversification
The BCI ETF holds holdings in energy, agriculture and precious metals, with gold futures being the largest position at 15%, followed by natural gas futures at 8.5% and crude oil at 8%.
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Performance
Yahoo finance
According to Yahoo Finance, BCI posted a negative price return of 4% in 2022, which was more resilient than global equities (-20%), US equities (-19%) or emerging equities (-22%). ). ETF performance is influenced by global macroeconomic trends, such as supply and demand levels for each commodity. The recent BCI sell-off since the second half of 2022 was mainly driven by macroeconomic factors, such as China’s zero Covid policy and aggressive monetary policy tightening in the US. However, we expect these headwinds to turn into tailwinds in 2023, leading to a bottom in BCI’s performance.
Cost
BCI has a low expense ratio of just 0.25%, making it one of the most profitable ETFs in its category.
Looking for Alpha
Commodity Outlook
We believe a new commodity bull market has emerged since the Covid-19 pandemic, with most commodities currently in deficit and the supply-demand imbalance set to persist.
On the supply side, commodity producers are reluctant to spend on Capex, resulting in limited supply momentum.
Goldman Sachs
According Goldman Sachs estimates, capital expenditure on most commodities has been steadily declining since peaking in 2015. lowest level in the last 15 years. Supply response will therefore take time.
On the demand side, although the global economic outlook for 2023 remains uncertain, China’s reopening to the world is expected to boost economic activity and demand for commodities. In the long term, demand for commodities will be robust, driven by population growth, urbanization and the green transition, with the structural imbalance between supply and demand in most commodities driving up prices.
Conclusion
The BCI ETF offers investors exposure to a range of major energy, agriculture, metals and livestock futures contracts. Its “K-1 Free” structure makes it a more accessible investment option, and its diversified portfolio balances the uncertainty inherent in investing in commodities. With its low expense ratio and higher relative positioning in agriculture, BCI is a profitable and attractive option for investors seeking exposure to commodities.