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2 Commodity ETFs To Profit From Another Energy Price Run-Up

By Investing.com (Tezcan Gecgil/Investing.com )ETFsApr 21, 2022 15:06
ph.investing.com/analysis/2-commodity-etfs-to-profit-from-another-energy-price-runup-110148
2 Commodity ETFs To Profit From Another Energy Price Run-Up
By Investing.com (Tezcan Gecgil/Investing.com )   |  Apr 21, 2022 15:06
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Oil and gas prices have been in a bull market since the start of 2021. However, the commodities only hit record-highs this year, propelled by geopolitical tensions and increased uncertainty in energy markets.

At time of publication, Brent crude is trading above $108 per barrel while the US West Texas Intermediate, WTI, is over $103. In addition, natural gas prices are hovering around $6.8.

Since January, the Dow Jones Oil & Gas Index has soared by 43.7%.

Dow Jones Oil & Gas Weekly Chart
Dow Jones Oil & Gas Weekly Chart

Nevertheless, the current outlook on the energy industry for 2022 remains mixed. Despite tailwinds, the sector also faces a few uncertainties, including the deceleration of China’s economic growth, rising geopolitical risks, and disagreements among OPEC members.

A recent study by Deloitte suggests high oil prices will enable oil and gas (O&G) companies to increase their transition plans to alternative energy sources. The research suggests:

“76% of surveyed O&G executives state that oil prices above $60 per barrel will most likely boost or complement their energy transition in the near term.”

Today’s article introduces two exchange-traded funds (ETFs) that could appeal to readers who want to benefit from a continued run-up in energy prices.

1. First Trust Energy AlphaDEX Fund

  • Current Price: $16.50
  • 52-week range: $9.44 - $16.63
  • Dividend yield: 0.92%
  • Expense ratio: 0.64% per year

The First Trust Energy AlphaDEX® Fund (NYSE:FXN) invests in energy stocks based on several value and growth criteria. The fund was launched in May 2007.

FXN Weekly Chart
FXN Weekly Chart

FXN, which tracks the StrataQuant® Energy Index, currently has 37 holdings. Regarding sub-sectors, we see oil, gas, and coal (91.92%), and alternative energy (8.08%).

The top 10 stocks in the portfolio account for over 45% of $1.72 billion in net assets. Among those are Hess (NYSE:HES); Continental Resources (NYSE:CLR), Occidental Petroleum (NYSE:OXY); EOG Resources (NYSE:EOG); and Diamondback Energy (NASDAQ:FANG).

The ETF is up 38.4% this year and 67.4% in the past 12 months. FXN hit a multi-year high on Apr. 19. Trailing P/E and P/B ratios of 19.66x and 2.45x, respectively. Energy bulls could consider researching the names in the portfolio.

2. Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF

  • Current Price: $18.77
  • 52-Week Range: $13.22 - $22.73
  • Expense Ratio: 0.68% per year

Commodity prices have been skyrocketing. Recent research by Capital Economics highlights:

“Both Russia and Ukraine are large commodity exporters. Whatever the outcome of the war, we suspect that prices will remain high for some time.”

Yet the analysis also suggests that a potential “downturn in China’s commodities demand” is likely to weigh on commodities prices in the coming months.

Our second fund, the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (NASDAQ:PDBC) provides exposure to not just energy commodities but to metals and agricultural commodities as well. This actively traded ETF mainly invests in commodity-linked futures. Therefore, commodity bulls who want to diversify across the board may find PDBC worth researching further.

PDBC Weekly Chart
PDBC Weekly Chart

The fund started trading in November 2014, and assets under management stand at $8.7 billion. The benchmark index for PDBC is the DBIQ Optimum Yield Diversified Commodity Index Excess Return, which comprises a range of commodities.

They include (by order of weighting) aluminum, zinc, copper, NY Harbor ULSD, Brent crude, gasoline, WTI crude, natural gas, gold, wheat, corn, soybeans, sugar, and silver.

So far, in 2022, PDBC returned over 33.5%. For over a year, commodity prices have been volatile but overall strong. We believe inflationary concerns and geopolitical realities are likely to keep the positive momentum in most commodities intact.

Thus, this fund could appeal to readers who are bullish not only on oil and gas but also on other commodities. However, as an asset class, commodities are volatile. Therefore, profit-taking could come soon, which would mean a better entry point for buy-and-hold investors.

2 Commodity ETFs To Profit From Another Energy Price Run-Up
 

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2 Commodity ETFs To Profit From Another Energy Price Run-Up

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