Co-authored by Treading Softly.
Understanding the intricacies of commodity investment can be akin to interpreting the clucks of chickens or the scent of gasoline. As the economy dances to its own rhythm, separating the influence of interest rates can be as puzzling as unscrambling an egg. However, the astute investor knows that commodities are driven primarily by demand and inflationary impacts, offering a unique investment opportunity that dances to its own beat.
Amid the inflationary landscape triggered by the COVID-19 pandemic, commodities have surged to new heights, defying historical norms and presenting a potential for lucrative income generation, even in the face of economic downturns. Embracing the market’s exposure to commodities and conservative investment strategies can unlock significant income potential, sheltered from the storms of economic volatility. Today, we present two funds that offer a gateway to substantial income from the commodities sector.
Pick #1: BCX – Yield 6.9%
BlackRock Resources & Commodities Strategy Trust (BCX) is a Closed-End Fund (CEF) with investments across commodity sectors, focusing on energy, mining, and agriculture. At present, it maintains a reduced stake in agriculture. Source.
Investor enthusiasm for commodity sectors during the inflation surge was palpable, as higher prices fueled optimism. However, as inflation recedes, a flight of investors from the sector is observed. Yet, our focus should not waver; while prices may exhibit fluctuations, the big picture reveals sustained elevation of commodity prices, offering a compelling investment landscape.
Glancing at Glencore plc’s average commodity prices in Q3-2023 compared to Q3 2019, prices may have waned from their peak but still stand significantly higher than pre-COVID levels. Furthermore, a prolonged period of elevated prices offers a more compelling investment scenario than a transient spike, affording mining companies the financial impetus to fortify operations and foster enduring success.
The contrasting fortunes of the last decade, characterized by subdued commodity prices, are poised to yield to a vastly different era. Elevated prices, albeit lower than their peaks, present an alluring prospect for commodity investments, with BCX emerging as a conduit for stable dividends. Currently trading at approximately a 15% discount to NAV, BCX offers an enticing entry point for investors.
Pick #2: BGR – Yield 6.2%
BlackRock Energy and Resources Trust (BGR) stands as a CEF focusing on the energy sector, embodying a “pure play” on large integrated energy companies. While BCX casts a wider net across mining and agriculture, BGR concentrates on the energy behemoths, commonly referred to as “big oil,” despite their diverse product portfolios. Source.
The meteoric rise of solar and wind energy notwithstanding, their ascendancy remains a fractional fragment of the overall energy consumption. Projections by the EIA affirm that even with the anticipated rapid growth of non-fossil fuel energy sources, the enduring significance of traditional energy sources is irrefutable.
