Oil and maybe gold are the two commodities most think of when it comes to striking it rich. But ETF investors looking beyond the S&P 500 found an even hotter commodity: sugar.
The Teucrium Sugar ETF is up an astounding 58.3% this year — topping all other actively traded commodity and currency funds in that time, says an Investor's Business Daily analysis of data from Morningstar Direct. That easily tops the 10.7% gain of the top-performing oil ETF this year: Invesco DB Oil and the S&P 500 up 14.97%. It's also beating gold's 2% gain.
Such sweet gains come at a perfect time. The S&P 500 has struggled since late July. Investors worry inflation might hurt corporate profits. And higher rates on "risk free" Treasuries woo some investors from riskier S&P 500 stocks. Sugar is turning into an S&P 500-beating asset in the short and long term.
"Commodities can serve as a hedge during periods of high inflation," said Todd Rosenbluth, head of research at Vetta Fi. "In the recent past, commodities performed well due to supply chain shortages and the initial fighting following the invasion of Ukraine. Commodities retain their intrinsic value despite inflation unlike (stocks)."
More Than A Sugar High
Amazingly, the $24 million-in-assets Teucrium Sugar ETF isn't just having a good year. It's a standout in the short and longer term — beating even the S&P 500.
The sole sugar ETF, which charges 0.58% a year, is up 3.1% in just the past month. That tops Invesco DB Oil's 2.6% decline in that time. Sugar's long-term run is even more impressive. Teucrium Sugar returned 14.9% annualized in the past five years. That tops oil's 5.4% annual return in that time. Sugar's five year annual return beats even the S&P 500's 11.3% return.
What's driving sugar's power run? Sugar prices. Sugar is trading for 27 cents a pound, says S&P Global Market Intelligence. That's up 69% from the low in the past year.
Investors are worried about hostile growing weather conditions especially in No. 3 sugar producer Thailand, says Teucrium Sugar Portfolio Manager Jake Hanley. "(There are) concerns (the) El Nino climate pattern is taking a toll on production in Thailand and India. Thailand's crop could drop by some 30% or more."
Meanwhile, shortages might push India to ban sugar exports, he says. "That is a big deal as India is the second largest sugar exporter in the world."
Can Investors' Sweet Tooth Continue?
Can sugar keep rising. That's "hard to say," says Hanley.
It's going to "take another growing season" before dwindled supply of sugar can catch up with demand, Hanley said. And that's provided weather patterns making sugar tough to grow calm down.
Hanley says sugar's current price is key. A push higher than 27 cents a pound could be a harbinger for higher prices. Should ETF investors jump in now?
Adding Commodity ETFs To Your Portfolio
Adding commodity ETFs to a portfolio dominated with S&P 500 stocks makes sense, Rosenbluth says. But betting just on sugar ETFs "seems more speculative to me."
Broad commodity ETFs shined in 2022, he says. "They outperformed the falling stock and bond markets," Rosenbluth said. This year, though, is different. Most commodity ETFs are lagging and investors are pulling money out, he says.
So he prefers more diversified commodity plays. Teucrium Agricultural Fund invests in many agricultural commodities in addition to sugar, Rosenbluth says. And Invesco's yield optimized commodity ETF that trades by FDBC or First Trust Global Tactical Commodity Strategy ETF own energy and metals, too.
But sugar's fast rise is a reminder Commodity ETFs "can play a key role adding an alternative to traditional portfolios over the long term," Rosenbluth said.
Sugar ETF Is Sweet
Top-performing active commodity ETFs this year
| ETF | Symbol | YTD return | One-month return | Five-year return |
|---|---|---|---|---|
| Teucrium Sugar | 58.3% | 3.1% | 14.9% | |
| Invesco DB Oil | 10.7 | -2.6 | 5.4 | |
| United States Oil | 9.4 | -2.0 | -9.0 | |
| United States Brent Oil | 7.8 | -1.8 | 5.5 | |
| KraneShares Global Carbon | 7.4 | 2.2 | n/a | |
| Invesco DB Agriculture | 6.9 | -1.4 | 5.2 | |
| iShares S&P GSCI Commodity-Indexed Trust | 2.6 | -2.1 | 3.7 | |
| iShares Gold Trust Micro | 2.0 | -3.1 | n/a | |
| SPDR Gold MiniShares | 2.0 | -3.1 | 9.1 | |
| Goldman Sachs Physical Gold | 1.9 | -3.1 | 9.1 | |
| S&P 500 | 15.0 | -2.1 | 11.3 |
