ZCOM: BMO’s Turnkey Commodity ETF
BMO’s ZCOM ETF provides a streamlined, all-in-one way to invest across global commodity markets—balancing diversification, inflation protection, and growth potential.
Though the modern investment landscape is filled with unique offerings that appeal to investors, there is value in maintaining exposure to asset classes that offer a tangible benefit and are essential to the global economy. Recently, BMO Asset Management launched the BMO Broad Commodity ETF (Ticker: ZCOM), a single investment solution giving investors streamlined access to global commodity markets.
Commodities Explained
Commodities are tangible assets that play a critical role in the global economy, as they are often the raw materials used as inputs in the production of goods. Commodities can be divided into two broad categories, hard and soft. The former are natural resources that are mined or extracted, such as Energy (i.e., crude oil, natural gas, coal, and gasoline) and Metals (i.e., gold, silver, copper, and iron ore), whereas the latter refers to agricultural products that are grown, such as wheat, corn, soybeans, coffee, cocoa, and cotton or livestock.
ZCOM’s Value Proposition
As a turnkey commodity solution, ZCOM provides investors with exposure to both hard and soft commodities. The fund’s objective is to replicate the total return performance of a broad-based commodity index, currently the Bloomberg Commodity Index Total Return Index, which is constructed using 24 commodities spanning agriculture, energy, livestock, industrial, and precious metals.
“The BMO Broad Commodity ETF reduces complexity, giving investors streamlined access to global commodity markets through a single investment solution while also trading in Canadian dollars to help reduce currency risk,” said Bipan Rai, Managing Director and Head of ETF & Alternatives Strategy at BMO Global Asset Management. “This new BMO ETF comprises a wide range of commodity sectors including energy, agriculture, livestock, and both industrial and precious metals, offering investors seeking portfolio diversification another option to consider when making investment decisions.”
ZCOM: Commodities as a hedge against inflation
Inflation—which can erode the value of stocks and bonds—often leads to higher commodity prices. This positive correlation between inflation and commodities has been observed over time. For businesses involved in commodities, as the cost of farming and producing grains increases, these costs are passed along the value chain and ultimately reflected in the prices of the goods consumed. For investors that have exposure to commodities (or associated businesses) within their portfolio, the strong pricing power they possess allows them to mitigate the effects of rising inflation, relative to other asset classes or business entities in the economy.
ZCOM: Commodities as a portfolio diversifier
Investors looking to diversify their portfolios beyond traditional asset classes, such as stocks and bonds, may at times turn to commodities. In looking at the 5-year correlation between commodities and other asset classes, there is clearly a weak to negligible relationship.
Though commodities have strong diversification capabilities, they can be volatile, and market dynamics strongly drive their performance. As such, geopolitical changes in the global landscape do have a material impact on performance.
Takeaway
ZCOM is a comprehensive commodity solution that allows investors to diversify their exposure to the commodity landscape and take advantage of specific market trends, such as gold as a safe-haven asset, supply shortages in metals, and rising oil demand. Additionally, ZCOM can be used to capture short- to medium-term price movements driven by global events, weather, geopolitical shifts, or economic cycles.
Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.
