Navigating the commodities super-cycle: trend following or long-only ETF?

Over the past few months, there’s been a growing consensus among market analysts that commodity markets will likely outperform other asset classes over the next decade. This has been my contention as well. One of the readers of our newsletters asked a simple question: why do I not just buy a commodity ETF? It’s actually a great question. If you had a strong conviction that commodity prices will rise, buying a commodities ETF could be the obvious way to profit from the coming cycle.

So why bother with the complicated ‘diversified’ approach with trend following and all that? Here’s why: on the macro level, we might agree about what’s probably coming our way. But none of us knows exactly when this will happen, how quickly the events will take place, their magnitude, which markets will rally first and which ones last or not at all… Market events don’t announce themselves in advance and when trends begin to unfold, they don’t move along straight lines.

A few charts from the last commodities bull market are the best way to illustrate this:

In each case, the commodity in question experienced a multi-year trend with its price increasing several-fold. However, each one followed a different trajectory that included many large corrections and long periods of trendless price consolidation.

I believe that the best way to navigate these events is by using a set of well-formulated trend following strategies that can pick up the trend moves in their early stages, but also minimize losses during adverse price events. Trend followers – and this includes yours, truly – have a long and successful track record of navigating such events and capturing profits from trends, regardless of when and in which markets they unfold.

The easiest way for you to gain dependable guidance and navigate the coming commodity super-cycle profitably, with confidence and peace of mind is with TrendCompass decision support, which is available on subscription.