After years of underperformance, commodity exchange traded funds are finally beginning to turn some heads as investors seek out alternative assets to diversify potential turns in traditional assets like stocks and bonds.
For instance, despite the depressed inflationary environment, many still expect inflation to at the very least hit the Federal Reserve’s 2% target ahead. However, inflationary spikes could catch some off guard.
Aaron Gilman, Chief Investment Officer of Independent Financial Partners (IFP), argued that a commodities portion is a good hedge against the unexpected side of inflation.
“The best product is a commodity type future. The initial shock [in inflation] is good for commodities,” Gilman told ETF Trends.
Among the various commodities futures-related ETFs available, Gilman pointed to the actively managed GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (NYSEArca: COMB) and GraniteShares S&P GSCI Commodity Broad Strategy No K-1 ETF (NYSEArca: COMG) as cheap strategies with less hassle come tax season.
“We want to look for the cleanest way to get exposure,” Gilman said, pointing out the accommodative nature in the way the funds are structured.
COMB and COMG are benchmarked to the Bloomberg Commodity Index and S&P GSCI Index, respectively. The funds are structured as 1940 Act funds, do not issue K-1s, and are two of the lowest cost broad commodity ETFs in the U.S. market with total fund operating expenses of 0.25% and 0.35%, respectively.
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Gilman sees the no K-1 feature as a way to “cut out as much fat as possible.” The funds are called “No K-1” because they are designed to operate differently than commodity-based exchange traded funds that distribute the troublesome “Schedule K-1” to shareholders come tax season. The ETFs are designed to be taxed like a conventional mutual fund and therefore will deliver a “Form 1099” to investors. To deliver 1099s consistent with applicable tax law, the ETFs invest in an underlying subsidiary.
From the two picks, Gilman’s Independent Financial Partners leans toward COMB as a inflation hedge and also because the ETF incorporates a lower energy exposure since the financial advisory already holds another standalone position related to the energy market. When comparing the two options, COMB includes a much greater tilt toward agriculture and underweights energy while COMG includes over 50% exposure toward energy.
For more information on the commodities market, visit our commodity ETFs category.