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Bitcoin may be one of the hottest investments of the year, but a decidedly less-exciting asset class is nipping at its heels. Commodities — yes, things like oil, gold, soybeans, and sugar — are the second-highest returning investment, behind the largest cryptocurrency.
Through mid-August, bitcoin has surged more than 51%, while an exchange-traded fund (ETF) that tracks a commodity index has jumped 28% year-to-date, according to figures from YCharts. As recently as late-July, the performance gap between these two classes was even narrower, with bitcoin up 38% and cryptocurrencies up 33%. In fact, a so-called supercycle has helped put commodities on pace to rank second for 2021 among 17 different major asset classes, including tech stocks, bonds, real estate and more.
Aside from playing a famous cameo role in the movie Trading Places, commodities rarely garner the same attention as flashier counterparts like stocks or more recently, cryptocurrencies. But trading as we know it today began thousands of years ago with commodities, and these alternative assets can serve an important role of balancing out risks in any well-diversified portfolio. (Experts generally recommend that commodities should make up no more than about 3% to 5% of your overall portfolio.)
Most investors aren’t buying and selling things like crude oil or corn futures directly, though they may already have money invested in these types of assets without realizing it. For example, T. Rowe Price includes commodities in its target-date funds, which are popular offerings in 401(k) retirement plans. Meanwhile, Merrill Lynch recommends commodities to its mass-affluent clients.
What’s more, it’s easy to invest in commodities with ETFs. There are 102 such funds, according to figures from ETF.com, and there are options that track one specific commodity (like gold) or broader market benchmarks. The ETF referenced in the above chart, for example, tracks 14 different commodities in the energy, precious metals, and agricultural markets, including oil, gasoline, zinc, sugar, and corn futures — among others.
As with the shorter-term returns of any investment, however, understanding the longer term context is key. A good year for commodities is following a dismal decade. Investors lost money in commodities in six of the 10 years from 2010 through 2011, and this is the only asset class with a negative cumulative return since 2011, the data shows.