Understanding Gold's Hot Streak and Other Investing Trends in Commodities

We're bullish on copper because there's really a dramatic supply and demand imbalance. The world is demanding more and more copper. There's barely been any investment over the last few decades in bringing new supply to market.

Hello and welcome to the program. I'm Stephanie Stanton, it is great to see you again. Be sure to subscribe to ETF Guide TV and post your thoughts in our YouTube comment section below. We are very pleased to have John Love, the CEO of USCF Investments, with us today. John, it is great to see you, welcome back.

Definitely, thanks for having me. Thanks for that nice intro. SDCI has been getting a lot of deserved attention lately. The fund has been a top tier performer in its category and has even garnered a five-star rating from Morningstar. Tell us the latest with the USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund. Can you explain SDCI's factor-based approach?

Thank you for that intro, thanks for having me. SDCI has been doing great. The fund returned about 18% last year. The largest broad commodity ETF only returned 2%, and SDCI's 18% return was almost 3% better than our next closest competitor, more than 8% more than the next closest competitor after that.

It's been going great, investors have noticed, assets have more than tripled since the start of the year as people have connected with our story. I should say here, please go to our website, USCFinvestments.com, for complete performance info, and obviously past performance doesn't guarantee future results. People have been noticing SDCI lately, they've been seeking out commodities as they've been looking for some diversification.

Commodities provide diversification from stocks and bonds. They also provide an inflation hedge, but it isn't necessary or even optimal to belong to the entire commodity universe all at once. Traditionally, broad commodity strategies hold fairly static weights. SDCI is dynamic with the weights with the commodities it holds. It rebalances monthly, and we think we can have higher weights of commodities that people might not think so much about. For example, last year we had higher exposure to cocoa and coffee relative to a lot of other strategies, and both of those were great performers in 2024.

As far as the factor strategy goes, SDCI picks commodities based on a market signal that we consider a proxy for relative inventory. If the market thinks that something is going to be scarce, if there's going to be a shortage of a commodity, that commodity is more likely to go up. This dynamic process has actually worked on average with SDCI holding the best performing commodities over time much more often than it holds the underperformers. That's enabled SDCI to give strong beta to traditional commodity indices while delivering outperformance over multiple time frames since the fund's inception. SDCI is highly correlated with the Bloomberg commodity index, which is very popular, but its annualized return is more than 3% higher than Bloomberg at about a 7.5% annualized return since the fund's inception, so we really couldn't be happier with it right now and we hope you continue to take a look.

Shifting gears a bit, the United States Oil Fund, ticker USO, remains the largest oil-focused ETF by assets under management. USO has become a popular choice for investors and advisors looking for exposure to crude oil. Tell us more.

USO is simple, that's the great thing about it. It provides traders with exposure to the price of crude oil, which is still the most important commodity in the world. It does not invest in energy companies, which are driven by other factors besides the price of crude. USO holds futures contracts, so traders bullish on the price of oil or oil futures can take a position without opening a futures account and dealing with margin calls and the other headaches of managing a future's position.

Because it trades on the NYSE, it's easy to take short-term positions, whether that's intraday, several months, or whatever time frame matches a trader's outlook. It's really pretty straightforward, if you're looking for the returns on crude oil futures, that's what USO is exposed to.

Let's look at the energy sector from another angle. The USCF Midstream Energy Income Fund, ticker UMI, covers many bases. How does the fund work and what type of investor might UMI appeal to?

UMI is an actively managed fund that invests in MLPs and midstream energy companies. It looks to deliver income plus growth. UMI may be especially appealing to investors seeking income since the type of investments that it holds tend to produce high current income, and that's supported by long-term contracts that these companies tend to hold.

Additionally, the holdings have experienced strong dividend growth, so not only is that great for income investors, but for other investors that might reinvest that income and allow it to compound. UMI can provide a strong total growth return as well. Since inception, which was March of 2021, UMI has returned 152% versus 65% for the S&P 500's total return.

Past results don't guarantee future performance, and please go to our website for a few details, but a few more things to point out. UMI typically has limited direct commodity price exposure. For example, UMI's beta to USO was only about 0.36 over the last three years. That means it only moves with USO about 36% of the time. The same is true for other types of energy investments, so UMI can provide income and growth that is not correlated with other assets, even the ones you might expect.

UMI has had an annualized return that's almost doubled the S&P 500's total return since inception and almost three times the Bloomberg energy commodity index's total return. Finally, one other point, UMI is actively managed. The portfolio managers aim to own quality companies with financial strength. They're looking for things like cash flow, free cash flow yield, credit ratings, other factors like that. They also analyze business factors like the quality of the contracts that I mentioned earlier. They also use quantitative analysis and ESG factors, look at the bull and bear case.

They consider risk and valuation, and the active management space like this is something that really can be a strong differentiator. Hopefully that gives investors peace of mind that they're not just owning everything, but they're really getting quality companies with the potential to continue and paying growing dividends.

So you have two ETFs in the copper space, the United States Copper Index Fund, and that ticker is C-P, and then the recently launched USCF Daily Target Two Times Copper Index ETF, and that ticker is CPXR, both ETFs targeting copper, but each with a unique investment strategy. Tell us how these funds compare.

We are the sponsor of the recently launched CPXR, but that fund was actually issued by Tidal. We teamed up with Tidal to expand our bullish view on copper. We are the advisor, the issuer of CP, which was first listed in 2011, so we've had that fund a long time. This new fund with Tidal was just to provide 2x exposure to copper for people seeking a leverage product, while CP remains unleveraged, so basically two ways to play it depending on your comfort level with the amount of exposure you feel like taking.

We're bullish on copper because there's really a dramatic supply and demand imbalance. The world is demanding more and more copper. There's barely been any investment over the last few decades in bringing new supply to market, and worse, it takes a long time, a decade or more, to bring new copper mines online, so the story really couldn't be simpler.

Copper does rise and fall with a global economy, so things like recessions, slow slowdowns in a big manufacturing country like China, those things can lower prices, but if you step back from the business cycle, the economic cycle, there's less copper available than the world needs. That's why professional thieves are stealing it from cities, cutting it out of people's cars.

Even if you don't believe the electrification story, we have a new catalyst with AI and the data center build outs that are needed for that, and there's so much other technology infrastructure and things that use copper. The world just needs a ton of it, and we think there's not going to be enough.

Then let's not forget the USCF Gold Strategy Plus Income ETF, and that ticker is USG. This particular ETF offers a unique spin on the gold market. What are you looking for in 2025 when it comes to gold?

USG provides exposure to the price of gold, but also income in the form of quarterly dividends. USG has a high beta to the price of gold, about 0.8. The fund's trailing 12-month yield was 7% as of January 31st, so USG should basically move the gold about 80% of the time, but unlike gold alone, it may be appealing because of the income. Gold itself does not produce income or dividends.

USG generates income by selling covered calls on the fund's gold futures positions. If gold rockets up in price over a short period of time, those options might work against us here and there, but over the long term these kinds of strategies tend to outperform, especially in a market that's gradually up, a down market, a sideways market. That's where those options positions are likely to be most effective at generating income.

Looking into 2025, we're fairly bullish on gold. Central banks, notably China's and other countries, are continuing to diversify away from US debt and favor gold as they have been in recent times. There's a ton of uncertainty in equity and bond markets, a lot of news coming out every week that are rattling investors, and people are seeking the perceived safety of gold, which is traditionally provided that in volatile times.

One thing that could hold gold back a little bit is that interest rates are still high, making gold itself, which again doesn't produce income on its own, somewhat unfavorable by comparison to bonds. That's where USG can help out. It gives you that exposure to gold plus provides income, and we think just based on the history of strategies like this, it may be something for worth investors' attention.

We are going to wrap it up there. John, thank you so much for dropping by. We appreciate your very timely insights.

Thank you for having me, it was great to be here.

Be sure to visit USCFinvestments.com to learn more about their ETF lineup. I'm Stephanie Stanton with ETF Guide, thank you so much for watching, we'll see you soon.