FINSUM + Magnifi: This is the Best S&P 500 “Buy” Sign Since Before the Pandemic

(February 2021)

January and early February offered some rough times for investors. The two-week meme stock debacle had most investors’ hearts skip a beat and fear the entire market was in a bubble. However, applying some cold, rational logic to market movements yields a very nice picture. The reality is that VIX Index, Wall Street’s so-called fear gauge, just fell below 20. To put that in perspective, it is the first time that has happened since February 2020 (yes, BEFORE the pandemic). This means fear is leaving the market and could set the stage for more buying. According to one Wall Street strategist, “This is a positive divergence. Stocks churning but VIX falling. This suggests that ‘fear’ is receding from the market”.Read more


Children

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Baby-tech, parent-tech, fam-tech… call it what you will. The fact of the matter is, most millennials are having children later in life than their parents, and they want more efficient, streamlined ways to care for their kids.

From extending fertility to sleeping easier with a newborn to stimulating and tracking their child’s brain development, modern parents are using technology to do things in a more data-driven way than their parents did.

When it comes to his smart sock, parents and investors alike are buying in. Owlet, founded in 2013, remains a private company with an estimated annual revenue of $31.3M per year. In total, it has received $51.6M in funding.

Consider the case of Owlet Baby Care. The Owlet smart sock is a baby monitor that uses pulse oximetry to measure and track oxygen levels and heart rate, alerting parents via wirelessly connected devices if either reading drops to an unhealthy level. One sock costs $299 before additional accessories. According to Owlet founder Kurt Workman, “Parents spend a lot of money on their children, and will spend more if you can solve problems for them.”

Technology-driven parenting tools are here to stay, presenting lots of opportunity to investors. Here’s what investors should know about the fam-tech industry.

What is Fam-Tech?

Millennials are having fewer children, starting later in life, and their parenting style is driving new technologies. 

Consider that the fertility rate for the US in 2020 was 1.779 births per woman. That’s significantly lower than in 1950 when the fertility rate was nearly double that, at 3.148. 

According to a report by the New York Times, these days, first-time moms are on average 26 years old (up from 21 in 1972) and first-time dads are 31 (up from 27 in 1972). 

Even so, across the US, the age of becoming a mom for the first time is heavily divided primarily by one factor: education. Parents who have spent their time getting an education, building a career, and growing their income have children on average seven years later than those who don’t. These slightly older, well-educated parents are better able to afford everything from preschool to, well, Owlet socks.

Being an older parent isn’t out of the norm these days, and aspiring parents aren’t worried so much about age as their ability to have a baby at some point. Notably, egg freezing increased in 2020 when dating came to a halt. By 2026, the global IVF Market size is expected to reach $36.39 billion

These new-age parents are paying for things that in 1950 during the baby boom, parents likely never imagined. 

Consider, for example, a meal subscription just for babies. Square Baby personalizes a nutrition plan for baby based on their age, dietary restrictions, and preferences, sending nutritious frozen meals every two weeks. For older children, the company Raddish Kids offers a subscription plan focused on helping kids learn to cook in the kitchen. Raddish raised its first dollars ($3,515 above its $15,000 goal) though a successful 2013 Kickstarter campaign. 

Subscription services for kids are a big deal. And there are at least 22 clothing subscription services designed just for kids with parents that either a) don’t have the time or b) the interest to shop for new clothes every season for growing little ones. 

Subscription services are just one example of fam-tech at work. 

With parents so busy working, who has time to write out a baby book? Yet again, there’s an app for that. Queepsake captures moments and milestones via photos and messages on a smartphone, populating them into a book. 

Need help with bedtime for your little ones? The Hatch night light and connected app allows parents to adjust the sound from down the hall using a connected app.  The Hatch has a programmable “okay to wake” setting for young kids to help parents get a few more ZZZs. 

For older children, fam-tech has solutions for monitoring online activity, with parental controls over content and remote access to children’s online devices.

Why Invest in Fam-Tech?

Fam-tech has a huge market opportunity, with millennials looking to technology to help solve challenges associated with parenting in the modern world. 

For example, right now, a lot of families have a big problem. With more than a billion students suddenly unable to physically go to school in 2020 because of the pandemic, e-Learning became the unanticipated format of education in 2020. That means that these days, lots of parents are working alongside their kids who are schooling from home, leaving 65 percent of working parents feeling completely burnt out. 

When kids aren’t schooling and parents are playing catch-up, kids are left with more screen time than ever. That leaves parents trying to figure out which tools, apps, and tech they can direct their kids towards to help their learning and development move ahead, rather than regress. 

If 2020 has left a legacy, it’s rife with opportunities for new fam-tech solutions. And, according to the early-stage venture capital firm Initialized, we’re going to get them. From ways to get more sleep, to delaying parenting, to sourcing childcare, to tracking development, to monitoring e-learning, and more.

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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.

The information and data are as of the February 16, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.  

This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.


Baby Boomers

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Born between 1946 and 1964, today there are more than 71 million Baby Boomers in the U.S all between the ages of 56 and 75.

But they don’t just have numbers. Baby Boomers also hold the lion’s share of the wealth in this country compared to other generations, holding $59.6 trillion which is double the $28.5 trillion held by Generation X and more than 10 times the $5.2 trillion held by Millennials.

While a lot of marketing focuses on younger demographics, Baby Boomers are spending their money, accounting for roughly 50 percent of all Consumer Packaged Goods dollars. In 2019, for example, Baby Boomers led in pet spending. Baby Boomers also spend more at home improvement stores than any other generation. 

Beyond their spending now, however, Baby Boomers are anticipated to have healthcare needs and lifestyle preferences that will drive demand in the healthcare industry for years to come. Here’s what investors should know about the economic impact of Baby Boomers.

What Is the Baby Boomer market?

All Baby Boomers will be 65 or older by 2030. While Baby Boomers have increasingly longer life expectancies than previous generations, about 60 percent of Boomers have already been diagnosed with at least one chronic medical condition, such as arthritis, diabetes, heart disease, obesity, osteoporosis, hypertension and depression. These conditions typically necessitate regular doctor visits, prescription medications, and dietary restrictions. They also have the potential to result in a disability of some form.

The prevalence of chronic conditions among the Baby Boomer population translates to a need for more doctor time, more medication, and more interventions for any resulting disabilities. So, it should be no surprise that spending on health insurance, medical services, drugs and medical supplies is expected to grow as Baby Boomers age. 

According to government projections, health care spending is anticipated to grow to nearly $6 trillion by 2027. That is nearly 20 percent of the overall economy. That spending won’t all go to one place, but rather to the variety of healthcare entities and companies that support the aging Baby Boomer population. 

Why Invest in Baby Boomers?

Boomers are breaking stereotypes about aging, and that should matter to investors. 

Consider technology, for example.  While Baby Boomers tend to have a reputation for being slow to understand technology, 90 percent of Baby Boomers have a Facebook account, 67 percent of Baby Boomers own a smartphone, and the bulk of Baby Boomers also participate in some form of online shopping. 

Perhaps also surprising: more and more, Baby Boomers are moving away from cash and opting for contactless payment systems, especially in light of the COVID-19 pandemic. Not only are Boomers adopting PayPal, they are logging on to Zoom to keep in touch with loved ones. 

They are also logging on to smart devices to talk to their doctors. 

To manage their chronic illnesses in particular, especially in the age of the pandemic, Baby Boomers are opting for telemedicine visits, which are now reimbursable by Medicare. These visits are helping Baby Boomers manage things like weight, blood pressure, and avoid trips to the ER. Telemedicine visits allow users to talk with a doctor, get prescriptions, all while reducing the chance of getting COVID-19. Telemedicine also helps reduce healthcare costs by streamlining care and preventing expensive urgent care and ER visits. 

Baby Boomers tend to be well educated, and by effectively managing their conditions, they are anticipated to experience better health for longer than they would otherwise. 

Moreover, Baby Boomers generally want to be active, meaning that most aren’t spending all of their days in a recliner. 

This is creating a demand for joint replacements, and affording medical device makers and distributers a big growth opportunity. According to one estimate, by 2030, there will be a 600 percent increase in total knee replacements in the US compared to 2005. Over that same time frame, total hip replacements are expected to increase by 200 percent. In 2017 the average age for a primary total hip replacement was 65 and the average age for a primary knee replacement was 66, according to a report by the American Academy of Orthopedic Surgeons and American Joint Replacement Registry (AJRR). 

Lastly, Baby Boomers are wanting toage in place,’ or rather choose to live at home as long as possible, rather than retire to community living. With the number of Baby Boomers aspiring to ‘age in place’ spending on home improvements and more specifically home modifications (like ramps, wider doorways, and walk-in showers) that make aging in place possible is likely to continue.

The combination of aging in place, chronic conditions, and living longer will lead to an increased need for in-home care, with more and more Baby Boomers needing help with bathing, eating, dressing and walking. While no one knows when Boomers will be back on cruise ships, we do know that future healthcare needs for the Baby Boomer population are a certainty.

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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.

The information and data are as of the February 16, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. 

This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.


Sustainable Energy (Alternative)

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Renewable energy has a presence on both the American and the global stages with lots of room for growth. Perhaps unexpectedly, the pandemic did not slow renewable energy down. Instead, the public health crisis that seemed to stop the world in many ways actually accelerated the transition to renewables and away from fossil fuels. 

Part of that growth might be credited to Corporate and Environmental, Social and Governance (ESG) investment funds, which have clearly demonstrated that adopting renewables is good business, according to Duke Energy

2020 was the year that renewable energy generation established itself as the cheapest, at-scale, proven energy option available, exceeding coal-fired energy production, also according to Duke Energy. 

And that was before the Biden administration announced its ambitious goals for renewables and alternative energy. 

Renewable energy is anticipated to keep growing in 2021, especially considering the Biden administration’s stated goals of (1) achieving a 100% clean energy economy and (2) reaching net-zero emissions no later than 2050. To achieve this, the Biden administration has resubmitted the US to the Paris climate agreement as well as implemented executive orders to move the country away from reliance on oil and gas and toward renewables.

These policies include lowering or eliminating existing subsidies on fossil fuels as well as funding renewable sector investments designed to help spur job growth in both the solar and wind industries.

Alternative energy is becoming the norm and, now more than ever, is clearly the future. Here are the alternative energy sources that all investors should consider. 

What Is Sustainable Energy?

Alternative and renewable energy is energy that is generated by natural resources that readily replenish: the warmth of the sun, the blow of the wind, the movement of water, and the heat inside the earth to name a few. These resources do not generate greenhouse emissions. 

During the first five months of 2020 alone, renewable energy provided 25.3% of electricity in the US. That is more than a sliver of the energy pie, and it’s growing. 

The 7 types of renewable energy include solar, wind energy, hydroelectric, ocean, geothermal, biomass, and hydrogen. According to Duke Energy, the leading commercial renewable energy sources (ranked by market share and growth) include: wind, hydropower, solar, geothermal, and other technologies bolstering the renewable transition.  

Wind 

Wind and solar are expected to supply 70% of new power plant capacity built in 2021. Wind energy, unlike some other renewable resources, is available nationwide. It has the potential to be a viable source of renewable electricity in every state by 2050, according to the Wind Vision Report published by the Office of Energy Efficiency and Renewable Energy. 

In the case of wind power, new (gigantic) turbines are providing more promise than ever. G.E.’s latest wind turbines have a rotor with a turning diameter longer than two football fields. Compared to the largest turbines currently in service, they generate about one third more power. Compared to the first machines of their kind installed offshore in Denmark in 1991, they generate 30 times as much power. As wind energy infrastructure improves and becomes more widespread, wind energy will no doubt grow its market share. 

Hydropower

Hydropower uses moving water to generate electricity. Hydropower accounts for 52% of the nation’s renewable electricity generation and 7% of total electricity generation, according to the National Hydropower Association. While hydropower infrastructure tends to be dated (think dams, etc.), its power generation capacity is still very relevant. Even more, hybrid hydropower/solar plants (where floating solar panels are installed on the water of reservoirs, etc. that power dams) are becoming increasingly popular. 

Solar 

Despite the pandemic-induced economic downturn, solar installations increased in 2020. Solar generation is expected to account for 48% of US renewable generation by 2050, which would make it the fastest growing renewable power source, according to the Center for Climate and Energy Solutions. 

No doubt, President Biden’s policies will further expand the industry. His initiatives to spur the industry include a review of Section 201 solar tariffs, countervailing duties, and anti-dumping laws by the International Trade Commission. If these tariffs are reduced or repealed, it could have an enormous impact on the development of solar energy. 

It is also expected that tax credits and low interest financing available in the down economy will make solar energy installation more accessible both commercially and residentially in the year to come. 

Geothermal

Geothermal energy, or heat from the earth, can be extracted by drilling deep wells to warm underground water sources. While geothermal energy lags behind wind and solar, it has enormous potential, with the U.S. leading in geothermal energy production. 

Although geothermal energy might not seem as “front page” as renewables like solar and wind, it is getting investment attention. Breakthrough Energy Ventures, an investment firm that funds technologies that seek to limit carbon emissions (with backers including Jeff Bezos and Bill Gates) notably back geothermal technologies. Companies that have received investment include Dandelion Energy, which installs geothermal-powered heating and cooling systems for residential homes. 

Other Technologies

There are a host of other industries that will support the transition to a more renewable-based economy. These include effective energy storage (capturing and storing energy to use it at another time), fuel cells (which generate power with fuel), increased energy efficiency that reduces the need for energy generation), and electrification. 

There was a time when commercializing renewable energy seemed as far off as a flying car. But, that’s no longer the case. As more industries adopt renewable infrastructure, more companies strive to be green, and more consumers and investors demand both, the alternative energy industry will become increasingly mainstream. 

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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.

This blog is sponsored by Magnifi. The information and data are as of the February 10, 2021 (publish date) unless otherwise noted and subject to change. 

This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.


FINSUM + Magnifi: Why the Pandemic is a Big Boost to Robotics ETFs

(February 2021)

If you were to design a tailwind for the robotics sector, what would it look like. Perhaps a pandemic that causes social distancing and makes it unsafe for too many humans to congregate in one place, such as a manufacturing facility. It is from this lens that advisors would be wise to view robotics. Remember that robotics is not limited to physical machines, but also artificial intelligence, which means the huge surge in digital communications/computing that has occurred alongside the pandemic doubly boosts this sector. One great ETF to check out is the Global X Robotics & Artificial Intelligence ETF (BOTZ). The fund provides exposure to companies formally involved in robotics, but also artificial intelligence, including businesses involved with industrial robotics, automation, non-industrial robots, and autonomous vehicles.
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FINSUM + Magnifi: Why eSports ETFs May Be a Good Buy

(February 2021)

Thematic ETFs have been one of the market’s bright spots over the last couple of years. For evidence of this, look no further than ARK etfs, who has seen their AUM rise 1000% on huge inflows driven by the success of the holdings in their ETFs. So what might be the next big area? ESports is a good place to take a look. While the average advisor might not play too many videogames, eSports is a fast growing and hugely popular area for the Millennial and Gen Z generations. Take a look at Global X’s Video Games and Esports ETF (ticker: HERO), which invests in companies in the eSports space, ranging from video game production companies to businesses which facilitate the streaming of eSports play/competition.Read more


FINSUM + Magnifi: “Raging” Rally is Starting says Morgan Stanley

(February 2021)

According to both Morgan Stanley and Goldman Sachs, last week’s retail-driven chaos was nothing but a blip on the bull market radar. After a significant pullback last week (perhaps more significant psychologically than in pure price action), Morgan Stanley says a “raging” rally is starting. Like Goldman Sachs, who is now calling for a 16% gain in the S&P 500 this year, Morgan Stanley thinks the market is going to continue on a strong upward trend. The banks contend that the underlying economy has a lot of upside and thus markets are going to have a nice economic and earnings tailwind behind them.

Source: fnlondon.com

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Impact Investing

Lots of things didn’t play out so well in 2020, but impact investing— including environmental, social, and governance (ESG) and socially responsible investing (SRI)— wasn’t one of them. 

According to Fidelity, in 2020 “stocks at the top of our environmental, social, and governance (ESG) rating scale (A and B)…outperformed those with weaker ratings (D and E) in every month from January to September, apart from April.” That’s a big deal all things considered. 

Impact investing paid off for companies and investors alike in 2020. “Over a relatively short time frame…companies with high sustainability ratings performed better than their peers as markets fell. This bore out our initial hypothesis that companies with good sustainability characteristics have more prudent management and will demonstrate greater resilience in a crisis,” according to a white paper by Fidelity.

The bank’s findings don’t stand alone, rather they are the general consensus after a tumultuous 2020. 

According to Blaine Townsend, director of sustainable investing at wealth management firm Bailard in an interview with CFO Dive, 2021 is the year of ESG capitulation. “A lot of that comes from basic points we’ve argued for 50 years: companies who treat their employees and the environment better and are more transparent with stakeholders might make for better long-term investments.”

He suggests that companies should be proactive about ESG now to position themselves for long-term success. He also underscores that regulatory formalization of ESG reporting from the Securities and Exchange Commission (SEC) is on the horizon. 

Investors should take note, as well. Not only can ESG investing reduce portfolio risk, it can generate competitive returns, according to a report by Refinitiv that reflects consensus in the industry. 

Here’s what investors should know about impact investing in 2021. 

What Are the Top Impact Investing Trends in 2021?

“COVID, rather than dampening the interest in ESG-informed investing [has] actually…accelerated a number of these pre-existing themes,” according to AssetTV’s Jenna Dagenhart in an interview with Julie Moret, Head of ESG, Franklin Templeton Investments. 

According to Moret, there are four basic drivers of the ESG investing: (1) the growing relevancy of sustainability challenges, (2) a demographic shift to “millennials [that] are much more sensitized to environmental and social considerations,” (3) increased regulation and policy related to sustainability issues, and (4) increased pressure on corporations for sustainability disclosures.

According to MSCI, the top five ESG trends to watch in 2021 include (1) climate, (2) social inequity, (3) biodiversity, (4) investment return factors, and (5) increased reporting. Here’s why. 

Climate— The Biden administration rejoined the Paris agreement (which is designed to cut significant greenhouse gas emissions globally) immediately after his inauguration. As a result, corporations are busy setting emissions reduction goals in response to both investor demand and anticipated regulation. 

Social Inequalities— The pandemic’s impact on the most vulnerable people paired with the high-profile nature of the Black Live Matter movement have made social causes visible and paramount. According to Moret, “We’ve seen dislocations in markets, and we’ve seen the real impact on the economy… particularly [in] certain segments of the economies where employees…have been left with very little protection, whether that’s leisure, entertainment, and travel. I think it’s an absolutely reasonable expectation that post-COVID from an investor’s perspective, there’s likely going to be downward pressure on free cash flows.”

Biodiversity— Environmental issues are no longer limited to carbon emissions and climate change. Biodiversity loss presents major economic risks. According to an estimate by the World Economic Forum and PwC, approximately $44 trillion of economic value generation is tied to nature. That amounts to more than half of the global GDP. The COVID-19 pandemic has no doubt highlighted the potential “impact of greater contact between wild animals and human populations triggered by habitat loss,” according to IMPAX Asset Management. Investors can expect biodiversity to gain prominence as a named environmental priority in impact investing. 

ESG Investment Return Factors — According to the MSCI report: “In 2021, we see both hype and skepticism about ESG giving way to acceptance and a more nuanced understanding of when and how ESG has shown pecuniary benefits — and when it hasn’t.” There is a growing interest in correlations between ESG elements and performance, which are likely to be further analyzed and better understood in the year to come.  

More Data and More Reporting Companies are becoming increasingly focused on ESG in order to meet investor demands and attract investment. The government is also taking proactive steps to improve and regulate ESG disclosures, per a July 2020 report released by the U.S. Government Accountability Office (GAO) that evaluated the state of public company disclosures related to ESG issues. This means that investors and companies alike should expect more standardized ESG reporting requirements in the not-so-distant future. 

The COVID-19 pandemic changed the world and led average citizens and companies alike to reprioritize. If anything is clear, it’s that impact investing (whether by the name of ESG or SRI) is the way of the future. Not only is that encouraging for environmental and social change initiatives, it has proven that it will pay off for both investors and companies. 

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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.

The information and data are as of the February 1, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.

This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.


Commodities

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Although 2020 was less than a banner year for the commodities sector, the future looks bright. 

“The coronavirus pandemic has left the commodities industry reeling, disrupting supply chains and slashing demand,” according to S&P Global Platts president Martin Fraenkel.

In April 2020, for example the Bloomberg Commodity Index BCOM (which tracks 23 commodity futures markets) traded at an all-time low, according to Dow Jones Market Data. But it managed to rally more than 27% from that low. 

Fundamental economic changes in the energy sector and a weaker dollar are anticipated to boost commodities in the year to come. But, the rally isn’t expected to impact all commodities equally. 

Here’s what investors should know about commodities in 2021. 

What Are Commodities?

Commodities are “raw materials or agricultural products that can be bought and sold.” They generally fall into one of three categories: food, energy, and metals. They include wheat, corn, soybeans, coffee, or other foodstuffs; cattle or other stock animals; cotton; lumber; precious metals such as gold, silver, or copper; domestic and foreign currencies; and coal, oil, and other fossil fuels. 

Commodities are traded on a futures market. There, potential purchasers of commodities can participate in the auction market for the payment of goods which will be delivered on a specified future date.

Because investing in commodities can be complicated for an individual, commodity funds can be a more accessible and attractive alternative. As the name suggests, commodity funds invest in baskets of commodities. Commodity funds are typically themed such that an energy resources fund might invest in oil and natural gas or an agricultural goods fund might invest in a variety of agriculture goods. Commodity funds are generally not diversified across commodity types. 

The three main types of commodity funds, according to BlackRock, include: (1) Index funds, which track an index that includes various commodity assets; (2) Commodity funds, which invest directly in the underlying commodity asset; and (3) Futures-based commodity funds, which invest in commodities through futures contracts.

Investors can also invest in commodities through mutual funds, which typically invest in companies that deal with commodities. 

Why Invest in Commodities?

Commodities are a means of diversifying portfolios in order to protect against loss. The prices of commodities are impacted by supply and demand, exchange rates, inflation, and the general economic outlook. Because of these factors that can cause price fluctuations, commodities can be riskier than stocks and bonds. By the same token, they also have the potential to deliver above average profits.

According to S&P Global Platts, the five commodity themes to watch in 2021 include: (1) energy transition, (2) carbon reduction via carbon pricing, (3) a supercycle 2.0, (4) disruptive technology, and (5) post-pandemic unilateralism. 

Energy “The coronavirus pandemic has accelerated change in the global energy system, from historic declines in GHG emissions, inflections in demand trends and shifting production patterns, to an increased energy transition focus and aspirations towards net-zero emissions,” according to S&P Global Platts’ global director of analytics, Chris Midgley. Investors around the globe are paying attention. “The world’s largest oil traders are rushing to plough billions of dollars into renewable energy projects in the next five years, as they speed up preparations for a dramatic shift in the world’s energy mix,” according to the Financial Times. As the world’s energy sources shift, so will investment dollars. 

Reducing and Valuing Carbon—According to the Commodity Futures Trading Commission, “climate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy.” Even more, according to the report, “financial markets will only be able to channel resources efficiently to activities that reduce greenhouse gas emissions if an economy-wide price on carbon is in place at a level that reflects the true social cost of those emissions.” Pricing carbon makes polluting expensive, rather than free, in order to discourage polluting. Currently eleven states have active carbon-pricing programs. Pricing carbon federally is the job of Congress rather than regulators, per the report. Although there have been numerous attempts to authorize a federal carbon tax in recent years, none have succeeded. A greater push for clean energy, however, could change this. 

Commodities Supercycle 2.0 A supercycle can be defined as “decades-long, above-trend movements in a wide range of base material prices deriving from a structural change in demand.” As the world comes out of the COVID-19 crisis, it is expected to do so with “an emphasis on a green industrial revolution and a policy focus on social need” driving fundamental economic change. The push for decarbonization, specifically, is linked to an anticipated rally in commodities, from zinc, nickel, copper to iron ore and beyond— in other words, a commodity supercycle. 

Innovative disruption— As the world’s energy structures shift, new technologies—  from 5G to AI to blockchain— that solve problems, improve efficiency, reduce costs, and act as changemakers in the market will emerge. These will lead to significant commodity investment opportunities. 

Unilateralism— Ensuring food security throughout the pandemic has led countries including China to invest in more infrastructure to increase agricultural production. “The return of China as a major force in the global corn and soybean markets may add a further bullish factor to sentiment, as the restocking of the hog population affected by the 2018 swine flu outbreak could increase the country’s corn import quota threefold from 2020’s 7 million mt,” according to S&P Global Platts. As a result of the disruptions caused by the pandemic, countries will become more aware of how they operate both as part of the global supply chain and outside of it.

The world will eventually emerge from the COVID-19 crisis that rocked 2020. And, like any global crisis, it will leave the world forever changed. New solutions and new demands accelerated by the pandemic will drive markets to grow in new ways, adding new dynamics to what was pre-pandemic “business as usual.” The future of the commodities market will no doubt reflect changes across the industries that emerge with innovation and resolve.  

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The information and data are as of the February 1, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. 

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