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Commodities: The Top Asset Class of 2018 So Far

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Commodities: The Top Asset Class of 2018 So Far

Commodities: The Top Asset Class of 2018 So Far

Is the commodity supercycle coming back from the dead?

For now, such a claim could perhaps be considered both bold and premature – but there does seem to be some compelling evidence that is mounting to back it up.

The Asset Quilt

According to the most recent “Asset Quilt of Total Returns” put together by Bank of America Merrill Lynch, commodities are the top returning asset class of 2018 so far. The chart, which shows the total returns of asset classes over the years, has commodities at an annualized return of 22.7% year-to-date.

Right behind it is gold, which sits at 11.6% on an annualized basis:

RankAsset ClassTotal Returns (2018*)
#1Commodities22.7%
#2Gold11.6%
#3Equities (Emerging Markets)6.5%
#4Equities (S&P 500)6.3%
#5Equities (Europe, Australasia, Far East)5.9%
#6Global Bonds (High Yield)3.4%
#7Cash1.4%
#8Global Bonds (Investment Grade)-2.0%
#9U.S. Treasuries-5.7%
#10Real Estate-14.6%

*These returns are annualized in order to compare them with past years

Interestingly, commodities haven’t been on top of BAML’s chart since the years 2000 and 2002, which were at the beginning of the last commodity supercycle.

A Deeper Dive

Here is how commodities have fared from 2000 to 2018, based on annual returns. If the commodity sector keeps the pace for the rest of 2018, this will be the best year for the asset class since 2003.

Commodity performance 2000-2018

For various reasons, commodities have bounced back in the last three years.

The return of oil prices have helped to resurrect the sector. Ironically, the anticipated metal demand from renewable energy – which will be used to wean society off of fossil fuel consumption – is also a massive driver behind commodities right now.

Not only are base metals like copper, aluminum, and nickel essential for the “electrification of everything”, but lesser-known materials like lithium, cobalt, rare earths, vanadium, uranium, and graphite all play essential roles as well. They do everything from enabling lithium-ion batteries and vanadium flow batteries, to making possible the permanent magnets that generate electricity from wind turbines.

The environment for investing in commodities is the best since 2004-2008.

– Goldman Sachs, February 2018

Not surprisingly, here are how metal and energy commodities have performed since January 1, 2016:

CommodityPrice Change (Since Jan 1, 2016)
Vanadium459%
Cobalt277%
Palladium88%
Oil (WTI)86%
Nickel72%
Aluminum70%
Copper46%
Gold26%
Silver24%
Natural Gas21%
Platinum7%
Coal-8%
Uranium-40%

Some minor metals, like vanadium, have increased by over 400% in price in the last two years. That begs the question: how much room could there possibly be for price appreciation left?

Supercycle Potential

As Frank Holmes of U.S. Global Investors described in a recent post, the last boom was so prolific that investing in an index tracking commodities (such as the S&P GSCI) in 2000 would have resulted in the equivalent of 10% annual returns for ten years.

He also shared this chart, which shows the ratio in value between commodities and the S&P 500:

Commodities vs. Equities

In other words, commodities seem to be more undervalued than any time in the past 20 years, at least relative to equity indices such as the S&P 500.

Even if the above ratio comes back up to the median of 3.5, it’s clear that there could still be vast amounts of opportunity available in the sector for investors.

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Energy

Visualized: The Growth of Clean Energy Stocks

Visual Capitalist partnered with EnergyX to analyze five major clean energy stocks and explore the factors driving this growth.

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The teaser image shows the growth of clean energy stocks and hints at their cumulative five-year returns.

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The following content is sponsored by EnergyX

The Growth of Clean Energy Stocks

Over the last few years, energy investment trends have shifted from fossil fuels to renewable and sustainable energy sources. Long-term energy investors now see significant returns from clean energy stocks, especially compared to those invested in fossil fuels alone.

For this graphic, Visual Capitalist has collaborated with EnergyX to examine the rise of clean energy stocks and gain a deeper understanding of the factors driving this growth.

Sustainable Energy Stock Performance

In 2023, the IEA reported that 62% of all energy investment went toward sustainable sources. As the world embraces sustainable energy and technologies like EVs, it’s no surprise that clean energy companies provide solid returns for their investors over long periods. 

Taking the top-five clean energy stocks by market cap (as of April 2024) and charting their five-year cumulative returns, it is clear that investments in clean energy are growing:

CompanyPrice: 01/04/2019Price: 12/29/20245-Year-Return %
First Solar, Inc.$46.32$172.28272%
Enphase Energy, Inc.$5.08$132.142,501%
Consolidated Edison, Inc.$76.55$90.9719%
NextEra Energy, Inc.$43.13$60.7441%
Brookfield Renewable Partners$14.78$26.2878%
promotional graphic with a button and wheel that promotes the EnergyX investment site

But how does this compare to the performance of fossil fuel stocks? 

When comparing the performance of the S&P Global Oil Index and the S&P Clean Energy Index between 2019 and 2023, we see that the former returned 15%, whereas the latter returned an impressive 41%. This trend demonstrates the potential for clean energy stocks to yield significant returns on an industry level, sparking optimism and excitement for potential investors. 

A Shift In Returns

With global investment trends moving away from traditional, non-sustainable sources, the companies that could shape the energy transition provide investors with alternative opportunities and avenues for growth. 

One such company is EnergyX. The lithium technology company has patented a groundbreaking technology that can improve lithium extraction rates by an incredible 300%, and its stock price has grown tenfold since its first offering in 2021.

promotional graphic that promotes the EnergyX investment site

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