Is It Time for the Inflation Trade?
January 27, 2021
Read Time 2 MIN
Commodities are on fire. Agricultural prices have risen 42% since touching bottom in April, and industrial metals have risen 50%.1 Both are higher than they were before the pandemic began. The spot price of liquefied natural gas has exploded, reaching an all-time high of $32 per mmBtu in Asia.2 There is almost panic buying. Oil is lagging because of the inventory glut, but we expect that will vanish as economies open up. Shipping costs for container freight have tripled on some oceanic routes. “It’s the Wild West at the moment,” said one analyst. The pandemic may be causing distortions, but we believe there is little doubt that inflation is picking up in earnest.
The stimulus plan from the Biden Administration can only add to the inflationary policy. Moody’s Analytics estimates that accumulated fiscal relief – actual debt-funded spending – amounts to $5.2 trillion. “This is equal to an astounding 25% of GDP, substantially more than provided by any other country in the world,” it said.
The commodities bear market has trained companies to run fiscally tight ships, so a significant increase in supply in the near future is unlikely. This may change if prices continue to rise in the next few years and greed returns, but for now the setup looks good for commodities. The chart below is of our leading resources fund against its benchmark.
VanEck Global Hard Assets Fund vs. S&P North American Natural Resources Sector (SPGINRTR)
Source: Bloomberg. Data as of 1/22/2021. Please visit VanEck Global Hard Assets Fund for standard performance periods as of the most recent month end.
VanEck is well-positioned and offers a suite of funds that would benefit from inflation:
- VanEck Global Hard Assets Fund: Our natural resources investment team is among the industry’s largest and includes trained geologists and engineers as well as senior analysts with deep sector experience. The actively managed strategy provides diversified resource equity exposure including base and industrial metals and renewable energy.
- VanEck CM Commodity Index Fund: Offering diversification across five broad commodity sectors, this passively managed fund spreads its exposure across multiple maturities to maintain a constant maturity to isolate “pure” commodity price movement.
- VanEck Vectors Real Asset Allocation ETF (RAAX): This is a comprehensive allocation strategy that uses a data-driven, rules-based process to invest across commodities, natural resources equities, gold, REITs, MLPs and infrastructure. Real assets rallied at the end of 2020 as investors weighed the near-term risks of inflation.
- Gold Mining and Bullion Fund/ETFs: Our track record in gold investing extends over 50 years, across gold mining equities and bullion. We believe there is a compelling opportunity in this space given the continued risks in the market that drove gold to reach all-time highs last year along with companies healthier than they’ve been at any time in the last 10-20 years.
1 Source: Bloomberg. Agricultural prices represented by Bloomberg Agriculture Subindex. Industrial metals represented by Bloomberg Industrial Metals Subindex. Data as of 1/22/2021.
2 Source: S&P Global Platts. Data as of 1/15/2021.
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