It’s important that investors remember to rebalance their commodity ETF exposure, particularly as equity ETFs had a strong 2024.
A commodity ETF can add value to portfolios as it can serve as a portfolio diversifier and hedge against inflation. Commodity ETFs provide a low-cost solution for investors to gain exposure to an asset class that may otherwise be hard to access.
As investors prepare their portfolios for the year ahead, it’s important to maintain exposure to commodities. A small allocation to the asset class can go a long way. This is why many investors choose to allocate 5% of a portfolio by weight to commodities. To be clear, this means a disciplined investor will sell and decrease exposure as it creeps above 5%, but will also add exposure as it dips below 5%.
Investment weights in portfolios will change over time, as some investments may perform better than others. In the current environment, as equities have outperformed, there’s a chance investors may need to add more exposure to commodities to maintain their desired portfolio asset allocation.
Buying and selling assets to restore the portfolio’s desired asset allocation is important because a portfolio’s risk profile changes alongside the shifting asset allocation.
