Reflation Trade in Full Swing as Commodities Outpace S&P 500, Demand for Metals, Oil Soars

Nick Oxford | Reuters

The reflation trade is in full swing.

Commodity prices such as for oil and metals have spiked this year with investors betting on the economic recovery and related demand for materials, manufacturing and construction.

Invesco's PDBC Commodity Strategy ETF, which tracks the most heavily traded commodities, has risen nearly 26% in 2021 as the S&P 500 has gained 9%. Other commodity-related ETFs such as the GSG iShares commodity indexed ETF and COMT iShares commodity dynamic roll ETF have also beaten the market.

John Hoffman, head of Americas ETFs at Invesco, says he's seen high demand for commodities exposure through the firm's PDBC ETF.

"When you look at the inflation, the commodity fundamentals, the discussion around that and what's happening from the administration as it relates to infrastructure, clean energy spending, electric vehicles, this is what is prompting these client conversations," Hoffman told CNBC's "ETF Edge" on Monday.

"This particular fund has doubled from $2.7 billion to $5.4 billion just this year... Again, a simple way to get broad exposure to your metals, your [agriculturals], your energy, in a single solution," he said.

Douglas Yones, head of exchange-traded products at the NYSE, says exposure to commodities is integral to a well-diversified investing approach.

"There's academic science here that does show that having commodities as part of a portfolio does reduce overall volatility of a portfolio … Usually that's played out in the form of gold," he said during the same interview.

While gold has typically been favored as a way to gain exposure to the commodities space, Yones says fund flows indicate investors are moving away from that more focused investment to get more diversified.

"We look at commodity flows this year and what do we see? Year to date almost $10 billion leaving gold ETFs," said Yones. ETFs such as Invesco's are "putting together multiple commodities in one place. Historically [it's] really hard to access that market, you'd have to be trading your own futures… What's great about ETFs if they are now bringing that and democratizing that space."

Disclosure: Invesco is the sponsor of CNBC's "ETF Edge."


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