Gold Income Strategies, Commodity Diversification, and Energy ETFs

dollar is generally uh got a negative correlation to commodities because commodities priced in dollars you can almost think of it as an exchange rate.

It creates more demand uh for commodities priced in dollars when the dollar is lower.

So that has uh aided commodities as well. >> Hello everyone, I'm Stephanie Stanton with ETF Guide and it is great to see you again. you are in the right place for staying on top of the fastmoving ETF market.

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Investors along with financial adviserss and their clients face many challenges these days and this includes of course keeping pace with inflation, positioning important mega trends like electrification and generating steady income.

Well, here to discuss all of that and more is John Love, CEO at USCF Investments.

John, hi.

Welcome to the show. >> Hi, Stephanie.

Thanks for having me. >> So, let's talk about gold.

It has been a top performer.

It is hovering near record highs.

The USCF gold strategy plus income ETF and your ticker there is USG has been a beneficiary of gold's rise.

USG offers a differentiated approach by combining gold exposure with income generation.

Tell us about USG's unique gold income strategy and how the fund might fit into a diversified portfolio. >> Sure.

Well, there's really two things that differentiate it.

Uh, one is most of the gold ETF investments that are out there are just pure long exposure to gold.

So, which is great if that's, you know, what you're looking for. um when gold is going up, that's a wonderful thing thing to hold.

Um but the one thing that uh it doesn't do is produce income.

No, most most gold strategies, whether it's gold futures or physical gold bars, you're not going to get dividends out of that.

So we actually invest uh part of our uh assets in uh options on top of our gold futures positions which allows us to generate uh income in in most months um occasionally option strategies can go against you but on average and looking back in time um that that generates income which we then distribute on a quarterly basis.

So one thing is you know right in the name as you mentioned is is the dividend income.

So for investors looking for a little income along with their gold, that's one option.

The second thing it does is uh when gold is is really on a tear uh we'll probably underperform uh just because gold is is going straight up and we are selling options on that and that can lose uh maybe a little bit relative to gold.

Uh but that's if it's a really strong you know up move over a short period of time.

If gold is steadily climbing then those options should produce some income on top of the gold investment.

But it is at all-time highs as you mentioned.

And when people come become concerned about that, what happens if gold goes sideways, the strategy should keep producing uh some income that'll offset uh either that sideways market or any declines that materialize.

So um as investors want to keep their exposure to gold, but maybe uh continue to earn income and maybe mitigate against a little bit of draw down, this might be a strategy to consider. >> Yeah, definitely gives some flexibility there.

Okay, so moving over to commodities as a group.

Uh commodities continue to be top performers this year, beating stocks, bonds, and global real estate.

Um it's also lifted the performance of the USCF Summer Haven Dynamic Commodity Strategy ETF uh no K1 Fund and that ticker is SDCI.

So the fund has also garnered an impressive five-star rating from Morning Star.

And what has been driving SDCI's gains and what type of investor might SDCI appeal to? >> A couple of things.

One, uh, you know, commodities over from 2000 from the financial crisis really or 2010 to 2020 was a tough time for commodities.

Uh, there were some standouts, but uh, you know, commodities sometimes have different cycles.

Uh, since 2020, uh, a couple things have been going on. one, there's just individual stories within commodity baskets such as cocoa last year that uh people don't think about cocoa, they think about crude oil and and um co maybe coffee but they don't think about or copper I mean but they don't think about these smaller commodities and there's a lot of supply demand uh individual stories there and that drives commodities but also as a whole couple other things inflation uh has been higher and uh than it was in the past and uh in addition to that or the US Dollar has also uh been a major factor.

The dollar is generally uh got a negative correlation to commodities because commodities priced in dollars you can almost think of it as an exchange rate that creates more demand uh for commodities priced in dollars when the dollar is lower.

So that has uh aided commodities as well.

And then just there's a shortage of some things relative to to need and that uh continues to be the case.

So that's driving commodities in terms of who SDCI might appeal to.

Um I mean obviously you know you have to look at it uh whether it's suitable for your portfolio by yourself or with your financial advisor but I think it it's worth being cons everyone considering at least for two reasons.

One it provides diversification from stocks and bonds and people are really looking for that right now.

We're getting more calls than we ever have because people are looking for an alternative to stocks and bonds with stocks being so elevated and interest rates uh uh being where they are.

Uh and and looking at 2022 when both stocks and bonds uh decline simultaneously, people recognize that maybe some other forms of diversification are beneficial.

On top of that, um commodities, people tend to look at commodities and think, "Oh, they're they're risky.

They're very volatile." But they they over the long term a basket a commodity basket tends to have uh risk about equal to stocks.

So uh it's not necessarily as risky as people think.

Individual commodities yes just like an individual stock.

Something happens to a company, something happens to a commodity, you can have uh big big changes in the commodity price.

But as a basket we tend to see volatility that's comparable to stock indices over time.

So as the global economy undergoes electrification, the infrastructure necessary to produce and store energy will require substantial amounts of certain metals and that has put ETFs linked to copper like CPER and CPXR in the spotlight.

So despite recent volatility in the copper market, what is the outlook for copper? >> Yeah, copper uh very interesting one because you have traditional uses for copper.

It's tr traditionally been pretty correlated with the market cycle.

It's been called doctor copper because it can kind of indicate uh what the what's going on with the business cycle.

But now not only do you have more copper uh uh needed uh for traditional things like infrastructure, manufacturing and like and those kind of things around the world, but you have new demands from AI and uh even without AI, data center buildouts and all of all of these things and electrification as you mentioned.

And so there's this growing demand for copper.

Meanwhile, there has not been enough copper supply brought into the market over the last 10 to 15 years.

And it takes a long time to bring new supply into the market.

So uh a couple weeks ago there was a big correction in US copper prices.

There was a premium relative to overseas prices of copper.

Uh uh prices dropped by about uh 25% but back up a little bit from there.

But the key thing is that that's really potentially created a good entry point.

Uh the demand story for copper and the supply uh pending supply shortage has not changed.

So I think the fundamentals are still in place.

Um a downturn in the economy, the global economy can uh impact copper uh and and lower prices for a bit.

But we think long term over the next few years and and even beyond uh copper demand is going to exceed supply and it it may do so by uh by a wide margin. >> So natural gas, let's talk about that.

It is poised to play a critical role in the future of energy production especially with the global transition towards lower carbon solutions.

USCF Investments offers natural gas exposure via the United States 12-month natural gas fund and that ticker there is UNL and the United States Natural Gas Fund which is just the UNNG.

Um how do these ETFs work and what is the outlook for natural gas? >> So uh UNNG invests in the front future contract. the front month future is exposed to the most uh extreme price moves up and down uh just because it's nearest to the spot contract.

Whereas contracts further out on the futures curve uh tend to move a little less when there's a big shock u positive or negative to natural gas prices.

UNL owns the entire uh the first 12 months in the future strip.

Uh so it tends to uh potentially mitigate some of that volatility.

Uh but more importantly, copper or sorry, natural gas tends to be a commodity that is in what's called contango and that creates uh something you may have heard of called a a negative roll yield.

That can just be a headwind against your return.

So UNL when that condition is in place uh can mitigate uh that potential negative uh row yield doesn't guarantee a positive return and being in the front month uh even in a state of contango doesn't mean you're going to have a negative return but that is kind of a persistent thing in natural gas uh markets.

So UNL is designed to uh try to mitigate that somewhat.

Um the outlook for natural gas, that's an interesting one because we are starting to well or we have started to import uh considerably more liquid natural gas than we have in the past, but at the moment it is still very much a a US commodity.

There are overseas contracts, but in UNG and UNL we are buying the US contract.

And so it's very much driven by US supply and demand.

That means whether um events uh like uh Gulf Coast hurricanes that take supply offline or interrupt um uh shipping of of liquid natural gas can really impact the market.

So, it's really driven by domestic uh production.

We are running below uh the sort of the highs over the last five years that we hit last year, but we're above the five years average.

So, right now, natural gas started off the year great.

Uh it was up over 40%.

Uh it's now down uh over 20% uh year to date. um that has a lot to do with weather and uh you know just the amount of natural gas and storage but over the long term again you as you mentioned it's very vital so I think that's a product that uh you know investors are looking at it that's where you want to have probably a shorter term view a tactical use that as a tactical tool as opposed to necessarily something you just buy and hold and if you did want a longer period and the market's in contango UNL is probably um going to uh mitigate uh some of those headwinds that you face when contain goes in place. >> Yeah.

And it's interesting to see how your ETFs work with these different strategies and also as you said I mean natural gas isn't going anywhere.

I mean it is a a vital commodity and it will continue to be with us.

Right. >> Exactly.

It's just uh something that can be volatile, but it is vital and and and the more you know we're discovering that uh you know we need more power than ever and AI is just adding to that.

Uh so there's there's just a need for all kinds of fuels and policy will dictate what those fuels uh turn out to predominantly be but natural gas we think will play a part for quite some time.

So, your firm has launched a new Substack blog dedicated to commodities investing uh with insights, strategy breakdowns, and market commentary.

There was a recent insightful post about the dynamics behind what influences crude oil prices.

Can you talk about that or anything else you find interesting on the blog? >> Crude oil.

Well, first of all, thanks for noticing that and uh you know, we're excited to have that out there and we're hoping to expand that over time and get more out there to to help investors.

Um but the uh the crude oil piece that you mentioned uh just as I talked about natural gas being driven by domestic factors crude oil there are also contracts around the world and they can be a little bit regionally focused but crude oil crude oil is driven uh by global factors so geopolitics plays a part overall supply demand pays plays a part um over the last 15 years there's been this tension between uh OPEC actions and and US development.

Uh we've become the number the world's number one uh oil producing nation.

Uh but OPEC still has tremendous power as a cartel.

They have supported prices for the last 5 years by keeping their production capped.

But uh they have recently introduced crude oil back or production uh back into the market.

They're taking off voluntary quotas and cuts and that probably will uh have that's going to put some pressure on prices for a while.

The energy various energy agencies are expecting a glut of crude relative to demand next year.

So if more demand than expected materializes that could be beneficial for crude.

Um geopolitical events if they get worse can be beneficial for crude.

Um on the flip side you have uh just again the global economy crude tends to be a little bit synchronized a little more synchronized than some commodities with the business cycle.

Uh if you have a recession people are buying less and so less is being shipped less is being used for production of of goods and services.

So those are some of the things that drive energy and and just like I said with natural gas you know when it comes to crude oil uh it's a single commodity.

So you have the potential for more volatility than you have with a broad commodity basket.

So I'd kind of view that as a more tactical tool and view broad commodities as something that can benefit investors for diversification. >> So many factors and this is why we need you John and your firm. >> Oh, thank you. >> Um we also want to let our viewers know that they can check out USCF Investments Substack blog.

Just hit the link in the description section below.

John Love, thank you so much for joining us.

It has been a pleasure to speak with you. >> Thanks very much.

Thank you again.

Take care. >> And that does it for today's episode of Spotlight.

If you enjoyed the show, please let us know in the comments section below and by hitting the subscribe button.

To learn more about the investment strategies and ETF information that we talked about on today's program, be sure to visit uscfinvestments.com.

I'm Stephanie Stanton with ETFU.

Thank you so much for watching.

We will see you next time.