Commodities: Why investors should take a diversified approach

Crude oil prices (BZ=F, CL=F) hit a four-month low after OPEC+ extended production cuts into 2025. In such uncertain conditions, investors looking to gain exposure to oil face challenges. VettaFi Head of Research Todd Rosenbluth joins Wealth! to discuss strategies for investing in exchange-traded funds (ETFs) to protect against this commodity volatility.

Rosenbluth notes that ETF investors are gravitating toward "more broadly diversified commodity-oriented ETFs." He recommends "diversified commodity strategy ETFs," such as the Aberdeen Standard Bloomberg All (BCI), as a means for individuals "to get the benefits of diversification" while shielding themselves from market volatility.

"Many folks are nervous. They're looking for modest gains, up about 5%, or even down," Rosenbluth tells Yahoo Finance. "And so what we're finding is even the more free cash-flow, more broadly diversified ETFs are gaining traction."

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This post was written by Angel Smith

Video transcript

Crude oil hitting a four month low this week after US crude inventories rise and OPEC has agreed to start tapering its output cuts this year earlier than analysts predicted.

But if you want cash into the crude trade, how can you protect yourself from the commodities volatility?

Joining me now is Todd Rosen Booth, who is the verify head of research here in studio as part of the ETF report brought to you by Invest QQQ Todd Great to see you in person.

Great to be with you.

All right, So let's dive into this.

I mean SIG significant moves in the oil market, causing a little bit of volatility.

How can ETF investors protect themselves?

So what we find is that more investors are using, uh, more broadly diversified, commodity oriented ETF S, as opposed to going directly with oil.

So there's a United States oil fund, US, O, and it's quite volatile.

But what we find is that folks are getting the benefits of diversification.

Aberdeen has an ETF.

That ticker is BC I.

It's a diversified commodity strategy.

ETF uh, it's tracking a Bloomberg Index.

Energy is its largest overall sub segment of commodities, but there's exposure to agriculture, there's exposure to precious metals.

There's exposure, uh, to to gold more directly.

And that allows folks that may like gold through GLD the spider gold ETF they mean like energy through US O and they get the benefits of diversification.

We're also seeing folks turn towards more of the free cash flow oriented M LP S, which are in the energy space.

So the aerian M LP ETF the ticker is AM LP.

These are companies that sit in the middle of that energy sector that get the benefits of demand some supply.

But these are dividend paying stock buyback, uh, oriented companies, and AM LP gets you the benefits of diversification.

So we're finding that being quite popular this year and you can see how it's performing up on the screen.

Yes, certainly that, uh, two year chart that we're looking at up by about 10% over that time span.

Where else in the ETF market should investors look to hedge right now?

Yeah, so we find that folks are also nervous about the equity market.

So we had vet.

I recently did a survey of Financial advisor and this was took place as the stock market was up more than 10% for the year.

Where do they think the market was gonna be?

The S and P 500 was gonna be over the upcoming seven months of the year.

Many folks are nervous.

They're they're looking for modest gains of about 5% or even down.

And so what we're finding is even the more free cash flow more broadly diversified.

ETF S are gaining traction.

So you have Pacer, uh, cash cows, ETF COWZ that is the leader in that space.

But a newer product from Victory shares the ticker is VfL VFLO is a more growth oriented strategy and and we think heading into 2024 folks are gonna be more bullish on the markets.

And so a growth oriented strategy like that victory shares one could make sense free cash flow and and ultimately, how that translates into dividends as well.

Dividends have been a thematic strategy for anyone who's trying to figure out how to also hedge against volatility.

I mean, can you just compare those two?

Is it is it one and the same So the free cash flow sets up a company to be able to buy back stock to make, uh, to increase their dividend payments, but also the opportunity to then invest for the future.

So we are seeing interest in dividend oriented strategies and technology companies are increasingly turning and paying dividends.

So there's a couple of dividend oriented technology focus TDIV and TDV, UH, one from pro shares, one from First Trust.

These are more growth oriented, dividend paying companies.

We think that's an area of focus.

But of course, there's the more broadly diversified ones from Vanguard and iShares.

I was taking a look at some facts that data here and and during the month of April and May, analysts actually increased their EPS estimates and aggregate for the second quarter here.

What happens if we don't see EPS and and earnings for companies in the second quarter come into the streets?

Expectations and and how can investors best position themselves for that in the ETF real well, so that would certainly be increase in market volatility.

And so we're seeing some investors gravitate towards the ETF S that give you the ability to control uh, the downside risk.

So Calamos has launched a series of products.

Uh, recently.

I think CPSM is the S and P 500 version of that strategy you're protecting against the downside.

And then we're also finding interest in some of those covered call oriented ETF S. Uh, so SPY I is a neos ETF GP IQ is a Goldman Sachs ETF Those give you some income streams while, uh, giving you equity exposure as well.

Todd Rosen, Who was the Verify head of research.

Great to see you in person.

Great to be with you.

Thanks a lot.