Commodities, Rates & Indexes

USCF opened its doors in 2006 to make investing in commodity futures accessible to every investor.  Why should an investor consider commodities and how do they relate to other asset classes and economic indicators.






Disclosure:
The commentary provided during this podcast reflects the personal opinions, viewpoints and analyses of the participants providing such comments, and should not be regarded as a description of advisory services provided by USCF Investments or its affiliates or SummerHaven Investment Management or its affiliates or the performance returns of any fund managed by any such entities.

The views reflected in the commentary are subject to change at any time without notice. Nothing said during this podcast constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security.

Investments involve the risk of loss. Diversification does not eliminate the risk of experiencing investment loss. 

Commodity trading is highly speculative and involves a high degree of risk. Commodities and futures generally are volatile and are not suitable for all investors. 

Past performance is no guarantee of future results.

Maya, Lowry, John Love and Katie Rooney are Registered Representatives of Alps Distributors, Inc.

ALPS Distributors, Inc. is not affiliated with USCF Investments, member FINRA.

Thank you for listening!

Transcript

Commodities, Rates & Indexes
Season 5: Episode 1

 Katie Rooney (00:01)
Welcome to the Real Spiel with USCF Investments. I'm Katie Rooney.

 Maya Lowry (00:06)
And I'm Maya Lowery.

 Katie Rooney (00:07)
And today we're joined by USCF Investments President and CEO, John Love.

 John Love (00:14)
Hey guys, thanks for having me.

 Maya Lowry (00:15)
Welcome, John.

 Katie Rooney (00:17)
Yeah, we're really excited to get the real spiel on commodities. But first, can we get the real spiel on USCF?

 John Love (00:26)
Yeah, absolutely. Well, you guys know it as good as I do, but I'm happy to talk about it. I I love our company. We've been doing what we do for almost 20 years now. We are known for launching some products that were the first of their kind. We're early to the commodity ETF space. We launched the first single commodity futures ETF, which was also the first oil ETF.

 And our goal has always been with the products we launched to bring something new to the market, something that investors didn't have before. And if you look at the evolution of the ETF market, everything started off with the stocks, and then people started moving into other asset classes. We had broad equities, then we had sector equities, but we didn't have a lot of ETFs when we first entered the market space. But we did see one key thing that people didn't have was commodities. When you think about broad asset classes, stocks, bonds, after that, what do you tend to think of? I would say maybe real estate and commodities are two of the next things you might want to look at. And there's no easy way for an average investor to invest in commodities. There were very few products out there that allowed people to do so. There were some natural resources funds, but those were equity products. That was not a real way to get a commodity exposure. If you wanted commodity exposure, generally you had to open a futures account. And that's very hard for an average investor to deal with on a daily basis. You could have margin calls. It's something that you've got to watch more because you're potentially using leverage. And we keep trying to bring new things to investors that give them new diversification tools or just different ways of pursuing their objectives.

 Maya Lowry (02:37)
Good stuff, good stuff. So, John, there's been a lot of focus on the Fed and talking about lowering interest rates. Now how would you say that commodities and interest rates correlate? Is there any connection there?

 John Love (02:53)
There's no direct correlation. in fact, it's almost zero. If you look over the last 30, 40, well, any time period, really, you don't see, you know, commodities either daily, weekly, monthly, quarterly, moving with interest rates. You do tend to see some coincidence with interest rate regimes, meaning if the Fed or other central banks are raising or cutting rates. There can be a correspondence to what's going on with commodities, but that has more to do with both of those things corresponding with the market cycle. What's interesting right now, a lot of people are asking that question, is now that the Fed is going to start cutting rates probably next month, and that we're now probably entering a regime where we're cutting rates for a while, what does that mean for commodities? This time around, they're not cutting in reaction to…Hey, I mean, we did have a weak labor market report earlier this month. There's a few things that suggest cooling, but the economy and the global economy are actually doing OK. And so, the Fed is not cutting because we're in a recession or there's an imminent recession. They are trying to achieve a soft landing. And there are some indicators that suggest that they've done that. If you look at the conference boards, LEI, Leading Economic Indicator Index. It bottomed in late 22 and has been rising ever since. Certainly, things can change, but you tend to see when the LEI has a sort of U -shaped recovery or bottom, it doesn't just drop back off. So that, among other things, suggests that maybe the Fed has been successful in achieving a soft landing, has tempered inflation, but the economic cycle is not going into recession. That may be a positive for commodities. So, there's no direct correlation with rates. There can be an indirect effect, but I think this time around, at least right now, I would say the base case is that we could still have commodity markets performing well, with the rates being cut. And a lot of that is because when you look at a basket of commodities, there's a lot of diverse things in there. They're all individual supply demand stories, and there's a lot of room for, with everything else happening in the world right now, the potential for good performance going forward.

 Katie Rooney (05:18)
Excellent. Well, I think that that was a really interesting topic that you just brought up about bundling of commodities. I think investors are really used to and comfortable with indexes, especially equity indexes, because they group similar companies together. But commodity indexes work a little bit differently than that. Can you touch on that?

 John Love (05:40)
Yeah, absolutely. Well, equity indices, I think if you look, first you just take classic risk. I'm going to use a technical term for some people, but risk return space, which basically just means a graph. And if you put return on one end and risk on the other end, where do equity indices show up? They're going to of cluster together. So, I mean the S &P 500, the NASDAQ, the Wilshire 5000. They're going to have similar returns and similar risk. They can have differences, but they're not that tremendous across the spectrum. Same thing with bonds. They're going to have similar return and similar risk. They're going to kind cluster together the major bond indices. Commodity indices can be very spread out. And the reason for that is people take different approaches to what they put in commodity indices for very good reasons. mean, some of the classic indices like the GFCI have a very high weighting to energy. The reason for that is energy is a huge, huge part of global economy. So, the weighting to energy is large. Other indices may use something more dynamic, more equal weighted. And the advantage there is instead of just representing what, you know, how important a commodity is to the global markets, to the global economy, you can look at things like coffee, cocoa, cotton, crude oil. And, they all have different drivers. So return, supply, oversupply, demand relative to supply, it can occur in any market, it can occur in markets simultaneously, but they're not always rising and falling together. So, the way you allocate and the way that you change weightings can have a huge effect on the performance of your commodity index over time. And so, it's very important for investors to look what's in the basket. What is the weighting methodology? What is the rebalancing methodology that I'm getting here? And is it consistent with what I think makes sense going forward?

 Maya Lowry (07:36)
Awesome. Well, thank you so much, John, and thanks for joining us and thanks to all of our listeners for joining us today. If you'd like to subscribe to The Real Spiel, please go to USCFinvestments.com or you can also go to your favorite podcast service to subscribe. If you have any questions, please email us at TheRealSpiel@USCFInvestments.com and we will see you next time.

 John Love (08:02)
Thanks guys.

 Katie Rooney (08:04)
Thanks, John.

 John Love (08:05)
Take care.