In this piece, we will take a look at the ten worst performing commodity ETFs in 2023. If you want to skip our introduction on the dynamics affecting the global commodities market over the past couple of years, then take a look at 5 Worst Performing Commodity ETFs in 2023.
Even though it's oil that takes most of the spotlight for rapid price increases, the global commodities market has also undergone significant shifts since the outbreak of the coronavirus pandemic. A key assumption for a robust outlook of many of the world's natural resources market and the industry this year was based on optimism for Chinese economic growth. However, even as the U.S. economy harbors predictions of a recession, the Chinese economy hasn't lived up to initial expectations. The slow growth in crucial industries such as construction and uncertainty among consumers for the future have cut demand for several essential commodities such as pork, steel, coal, and petroleum fuels.
Primary commodity price indices from the International Monetary Fund (IMF) show that a weighted index of primary commodities is up by 35% right now than its readings in 2019. Since then, prices have soared and dropped multiple times, particularly during 2022 as the world roiled from the Ukraine war's impact on commodity prices. By 2022 end, the IMF's index had risen to ten year high of 215.9, an appreciation that came rapidly after the five year low of 105.9 in 2020. Effectively, prices doubled and were led by crude oil in particular.
However, a Chinese slowdown is creating jitters about global economic stability, as evidenced by the sudden surge in the U.S. dollar. The Dollar Index (DXY) has reversed all losses since the regional banking crisis in March and is soaring as rising oil prices and weakness in European and Chinese markets continue to fuel worries about widespread order slowdowns for key raw materials. While the U.S. economy has avoided entering into a recession so far, there are still some quarters that believe a downturn can nevertheless occur.
For instance, consider a recent interview by Jeremy Grantham of GMO, an investment firm that specializes in predicting deflationary bubbles and economic downturns. Speaking to Bloomberg Television, Mr. Grantham shared that the Federal Reserve's predictions of no recession in America might not materialize, with inflation being out of Fed Chairman Jerome Powell's hands. Yet, when asked about what worries him the most, the investor shared:
Well, if you want my honest answer, I feel that the economy and particularly the stock market is very secondary to a list of important long-term problems that we have that no one takes seriously enough yet. And I feel that when we sit here discussing the stock market, we’re a little like Emperor Nero fiddling while Rome burns. My job description these days at GMO, I haven’t done traditional stock work for 15 years, is working on long-term, underrated problems. And it’s been a wonderful time to be doing that because we have climate change, the most important issue in the investing world for the next few decades.
According to him, these underrated problems include shortages in materials and manpower, global warming, and inequality throughout the world.
Back to commodities, some analysts also believe that while China might take longer to recover, India can pick up some of the lag. India is the most populous nation on Earth, and according to the Australia and New Zealand Banking Group Limited (AZN), India's annual demand for commodities is expected to rise by 5% between 2023 and the end of the decade. During the same time period, the bank also estimates that China's slowing economy will also lead to its demand for commodities significantly slowing down.
A big indicator of the demand for commodities will of course be the U.S. GDP growth data for the third quarter of 2023. Expected to be released next month, the data will provide information about the health of the economy after a revised estimate of Q2 GDP growth saw the percentage drop from earlier readings. A robust economy makes commodities such as iron and oil more valuable due to hopes of growing demand. At the same time, the future of some crucial sectors such as lithium and copper is more uncertain. This is due to supply chain and manufacturing deficiencies, with crude oil's well developed supply chain and ease of availability having the potential to become a hurdle when it comes to the mass scale of electric vehicle adoption. Global electric vehicle sales should touch one billion by 2050 if humanity is to eliminate its emissions impact on the world, but the lithium supply chain is already strained by a mere 6.6 million in vehicle sales according to the International Energy Agency (IEA). Lithium mining and output across the globe is thought sufficient to support a little over ten million EVs, indicating that if the shift to renewable energy vehicles is to be permanent, a lot more lithium needs to be processed for battery production. We've also made a list of some stocks of firms dealing in lithium mining and associated activities, so do check out 11 Best Lithium Stocks To Buy Now. The top three stocks on the list are Rio Tinto Group (NYSE:RIO), Albemarle Corporation (NYSE:ALB), and Tesla, Inc. (NASDAQ:TSLA) which plans to build a $1 billion lithium refining factory in Texas.
One way to invest in the commodities space, especially since there are dozens of different commodities with often different supply chains, one way is to track an exchange traded fund (ETF). These funds are typically managed by financial firms, and they either track stock indexes or create their own group of companies based on specific investment strategies. Today, we'll look at some commodity exchange traded funds (ETFs), and the top three worst performers on this list are ProShares UltraShort Bloomberg Crude Oil (NYSE:SCO), ProShares Ultra Bloomberg Natural Gas (NYSE:BOIL), and ProShares UltraShort Bloomberg Natural Gas (NYSE:KOLD). For more ETFs, you can also check out 10 Best Consumer Staples ETFs.
For our list of the worst performing commodity ETFs, we selected fifty major commodity ETFs and then ranked them by their five year share price drops. The funds are traded on major American indexes, and their price is reflective of the performance of the sectors of their constituent firms.
10 Worst Performing Commodity ETFs in 2023
10. WisdomTree Enhanced Commodity Strategy Fund (NYSE:GCC)
5 Year Share Price Gains: 1.64%
WisdomTree Enhanced Commodity Strategy Fund (NYSE:GCC) was set up in 2020 and is part of the WisdomTree fund family. Rather than invest in stocks, it invests in commodity futures, which is quite common in the sector. The fund has delivered close to 30% in market price returns since its inception, and more than half of its investments are in energy and industrial metals. Copper, gold, and soybean are some of the largest holdings in the $166 million ETF.
ProShares UltraShort Bloomberg Crude Oil (NYSE:SCO), ProShares Ultra Bloomberg Natural Gas (NYSE:BOIL), and ProShares UltraShort Bloomberg Natural Gas (NYSE:KOLD) join WisdomTree Enhanced Commodity Strategy Fund (NYSE:GCC) in our list of the worst performing commodity ETFs in 2023.
9. Teucrium Wheat Fund (NYSE:WEAT)
5 Year Share Price Gains: -5.54%
Teucrium Wheat Fund (NYSE:WEAT) is another futures ETF with holdings concentrated in three contracts. Two of these are traded on the Chicago exchange, and the Teucrium Wheat Fund (NYSE:WEAT)'s share price often responds to events in the wheat market. For instance, if the wheat supply were to face any risk, then the price might go up, and if there is stability in supply, then the price can fall.
8. abrdn Bloomberg All Commodity Strategy K-1 Free ETF (NYSE:BCI)
5 Year Share Price Gains: -7.46%
The abrdn Bloomberg All Commodity Strategy K-1 Free ETF (NYSE:BCI) is an exchange traded fund that is designed to track price movements in a variety of commodities such as gold, crude oil, natural gas, copper, and soybean. More than a quarter of its holdings are concentrated in gold, British Brent crude, and US WTI crude futures. It has $852 million in assets and the ETF broadly tracks the Bloomberg Commodity Index.
7. GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (NYSE:COMB)
5 Year Share Price Gains: -11.46%
GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (NYSE:COMB) is a diversified commodity ETF. It has more than 24 different commodities in its portfolio and total net assets of $115.5 million. The ETF also claims to be the "lowest cost" ETF broad commodity fund on the market, and all of its percentage losses follow a massive drop at the close of December 2022, when the price dropped by $7 approximately.
Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (NASDAQ:PDBC) is part of the Invesco fund family. It is a big ETF with $5.23 billion in net assets and a NAV of $15 which is in line with its share price. The investment objectives are to exceed the returns of a benchmark commodities index, with the assets concentrated primarily in gasoline, crude oil, and heating oil.
ProShares UltraShort Bloomberg Crude Oil (NYSE:SCO), ProShares Ultra Bloomberg Natural Gas (NYSE:BOIL), Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (NASDAQ:PDBC), and ProShares UltraShort Bloomberg Natural Gas (NYSE:KOLD) are some of the worst performing commodity ETFs in 2023.
