Trump card for commodities

Rhodium ETF

The June quarter provided ammunition for those on the traditional, low-cost, market-cap weighted index tracking side of the passive versus active debate. According to the report, Satrix’s resources 10 index tracker gained 20.34%, while Absa NewFunds S&P Givi Resi ETF, which tracks the US S&P 500, returned 20.15%.

Standard Bank’s West Texas Intermediate oil price-tracking exchange-traded note gained 33.59% over the June quarter, overtaking Standard Bank’s rhodium ETF, which gained 27.46%. Over the year, rhodium remained a clear winner with a 136.49% price rise, nearly double oil’s annual gain of 73.98%.

Global stocks, particularly in emerging markets, have been battered recently by geopolitical risks, including US threats of tariffs against China and the EU, which has in turn caused volatility for platinum group metals and the oil price.

Rhodium’s price has rocketed because platinum has become cheaper than palladium. Making autocatalysts out of platinum rather than palladium requires manufacturers to use more rhodium.

US vehicle tariff threats have “slaughtered” the platinum price, according to SP Angel analysts, with the futures price for the precious metal tumbling to its lowest level in nine years on Tuesday.

The oil price, meanwhile, has pushed to a three-year high due to, among other factors, a hardline approach by the US on Iran and Venezuela, even as Trump pushes for increased production of oil by Saudi Arabia, the world’s leading producer.

The recent pause in the dollar’s rally had helped risk assets and commodities, and while this was likely to continue in the short term, the trend was likely to be greenback strength, said Nedbank Corporate and Investment Banking analysts and Mehul Daya, a strategist.

“The trend for commodities is still downwards, but things don’t go up in a straight line.”

Dollar consolidation would continue in the short term but volatility should pick up, particularly as the northern hemisphere summer, which often subdues trading activity, comes to an end.

“I think we are just seeing the tip of the iceberg in terms of protectionist policies,” said Daya.

The third best performer over the June quarter was another commodity, wheat. Standard Bank’s wheat exchange-traded note gained 24.08% over the quarter.

S&P 500 index

The rand’s return to pre-Ramaphoria levels during the June quarter made the US the best stock market for South African investors.

The S&P 500 index-tracking ETF offered by CoreShares was the JSE’s fourth-best performing exchange-traded product with a 21.98% gain.

The benchmark Satrix top 40 index-tracking ETF gained 5.97% over the same period.

“Index-tracking ETFs generally perform better than similar index-tracker unit trusts and show far less volatility in total returns over various time periods,” said etfsa.co.za MD Mike Brown.

“This can be attributed to the requirement for JSE-listed ETFs to exactly replicate the index, which is not a requirement for nonlisted index trackers.

“Using quantitative methods to track indices without full replication — which can be the case for tracker unit trusts — can produce mixed results,” Brown said.

“Bonds and local listed property ETFs have performed badly, reversing the trend of the past few years for such asset classes to provide superior returns,” Brown said.

The JSE’s list of exchange-traded products combines ETFs and exchange-traded notes.

I think we are just seeing the tip of the iceberg in terms of protectionist policies.