Third Quarter Commodity Commentary
The third quarter of 2020 was a strong one for commodities in general, as most notable commodity benchmarks were up ranging anywhere from roughly +4%-to + 9%. The indices that were energy focused, lagged in comparison to its more diversified peers.
The Direxion Auspice Broad Commodity Strategy (symbol COM) performed well relative to its peer group, finishing +7.5% for the quarter. In addition, the outperformance of COM YTD relative to competitors continued to manifest itself as of the end of Q3, with COM down -2.5%* YTD (9/30/2020), while the notable commodity benchmark peers are down anywhere from 12-30% YTD. For the most recent month-end and standardized performance click here.
The “risk on” environment pervaded throughout the quarter as it was also a strong one for U.S. equities. The optimism around the timing of a therapeutic and/or vaccine, along with continued mantra for more fiscal stimulus kept the commodity markets in a mostly upward trajectory. This was evident by the strategy increasing the number of commodities it was long throughout the quarter, by going from only one as of the end of June, to eleven out of the possible twelve by quarter end.
One of the strongest gains for the quarter was in the metal sector, particularly in the industrial metals (silver and copper), as the reopening trade continued to gain momentum. An encouraging sign was the strength that copper showed throughout the quarter, as that tends to be a leading indicator for the health of emerging markets, and specifically China. In the case of silver, its industrial usage allowed it to continue to play catch up to gold, as silver’s prices were coming off historically low levels relative to gold within the early part of this year.
In the agricultural markets, it was an encouraging sign to see grains start to breakout of their long-term downtrend, as weather related impacts (dry and warm) could curtail production in places like the U.S. Midwest, Europe, and Argentina. This gave grains a boost, most notably the wheat markets.
Specifically the biggest individual commodity gains for COM during the quarter were in gold, silver, copper, wheat, and soybeans.
As we enter the fourth quarter, the political environment will take center stage and the ramifications of the U.S. election could lead to a number of scenarios playing out. This could include the potential of interest rates rising, yield spreads widening, and geopolitical factors (such as a global push for additional stimulus) taking place which could lead to some level of inflation. Historically, inflation has tended to be a favorable environment for commodities.
Lastly, we are pleased that the COM ETF continues to be ranked as a 5-star fund by Morningstar within the Broad Commodity category, while being categorized with the lowest risk level. Out of 101 funds based on risk-adjusted returns as of 9/30/2020†.
* The Fund’s adviser, Rafferty Asset Management, LLC (“Rafferty”) has entered into an Operating Services Agreement with the Fund. Under this Operating Services Agreement, Rafferty has contractually agreed to pay all expenses of the Fund as long as it is the advisor of the Fund other than the following: management fees, Rule 12b-1 distribution and/or service fees, taxes, swap financing and related costs, dividends or interest on short positions, other interest expenses, brokerage commissions, expenses incurred in connection with any merger or reorganization, acquired fund fees and expenses, and extraordinary expenses. If these expenses were included, the expense ratio would be higher.
For the most recent month-end and standardized performance click here.
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† Out of 101 US Fund Commodities Broad Basket funds based on risk adjusted returns as of 9/30/2020. ©2020 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The Morningstar RatingTM for funds, or “star rating”, is calculated for managed with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. The Direxion Auspice Broad Commodity Strategy ETF (COM) was rated against the following numbers of US Fund Commodities Broad Basket funds: 101 funds in the last three years. As of 9/30/2020, the fund received a 5-Star rating for the 3-year period and overall. Past performance is no guarantee of future results.
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