How to make money with raw materials: all the investment options that are within your reach

After the blow of the pandemic, and after some somewhat hesitant years, raw materials seem to have taken the path of the rally, and investor optimism for them is the highest in history, according to data from Bank of America.

And it is not for less, in the last six months, copper and aluminum, key materials for industry and construction, add up to 60% and 75% revaluation, respectively. Foods such as soybeans (+58) or corn (+42%) also follow the same steps. As for hydrocarbons, natural gas rises more than 50%, and oil, although it does so more tepidly, also achieves an increase of almost 30%. And in this same line, the Bloomberg Commodities index achieves 38.88% at one year.

Despite these rises, James Luke, fund manager at Schroders, assures that . Not only relative to other assets, such as equities, but also compared to history. Furthermore, as we move into a post-Covid world, governments around the world are enacting a mix of fiscal and monetary policies that he says will be far more positive for commodities.

Along these same lines, the energy transition will cause the demand for metals to accelerate in the coming years, as the world begins the shift towards electric vehicles and more renewable energy sources. In Luke’s opinion, other raw materials will also experience rapid growth in the coming years. This is the case of agricultural products, such as corn or soybeans, and also pork, driven largely by the demand of China’s growing urban middle class, and its inability to expand its agricultural sector. But how to invest in raw materials?

entry routes

The first option that may come to mind is the purchase of shares of companies specialized in the sector. For example, energy companies, steel companies, food companies… The truth is that opting for this route complicates diversification. In addition, its tax treatment is not the most convenient.

Another option is to go to the futures market, although for this it will be necessary to prepare a high amount, since the barriers to entry are very high for the retail investor. That, without forgetting its technical characteristics that make it a market only suitable for experts.

An alternative route is contracts for difference (CFD’s), although their high risk because they involve leverage has led the CNMV to warn about them on numerous occasions, even restricting some movements to retail investors.

How much can I earn by investing long term?

Another option is ETFs or exchange-traded funds, which, just as they allow you to take positions in indices of listed companies, also give you access to gold, silver, copper, or also on food, such as sugar, coffee or cotton. In addition, its liquidity is at the level of shares.

Finally, it is also possible to enter this market through investment funds. One of those that stands out in Finect is , whose largest positions are in energy (39.4%), precious metals (35.9%), and industrial metals (26.8%). So far this year, it adds 14.10%. If the term is one year, its increase is 30.14%, although in 2020 it lost 7.66%.

Another alternative is a product from Pimco, the . It covers various sectors, including the energy, industrial, precious metals, livestock and agriculture sectors, with the Bloomberg Commodity Index Total Return (EUR Hedged) as the benchmark. In the year it achieved a return of 13.94%, reaching 33.25% at one year, although, as in the previous alternative, it also lost in 2020 (-7.24%).

For those who do not want to leave Spanish banks, the . It invests in exchange-traded funds (ETFs) that replicate the evolution of the price of raw materials and also in futures contracts for some materials. Like all the previous options, in 2020 it failed to overcome the pandemic and lost 7.14%, but in 2021 it already adds up to 10.54% and a year later its profitability is 24.49%.

In any case, if it is not clear which way to choose to invest in raw materials or which fund to select, there is always the option of hiring one who, for a small percentage, is in charge of managing each portfolio in a personalized way and combining, in many cases, several of these alternatives.