Which index funds are the best for 2022? Consider CRAK, COPX and ENOR

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Inflation continues to be an important theme for investors. Additionally, geopolitical tensions around Russia, which is a very well-endowed geography from a commodity standpoint, have only exacerbated the problem and put it front and center in people’s wallets and their daily consumption. . For ETF investors, now is a good time to consider how to position themselves in this environment going forward. While it would have been nice to stock up on commodity exposures before everything recovers, we need to think about which commodities will experience sustained rallies or even further forward moves, and which ones will not. won’t have any. We think oil will reverse significantly, even though it has already turned away from its highs of $130 a barrel. We also believe that despite some renewable energy backlash, copper could experience a paradigm shift that would keep it higher. If you don’t want to bet against oil and still want to play inflation in a geographically attractive way, we also urge you to consider investing in Norway. Below we give you some ETFs with which to do this.

Which index funds are the best investment for 2022?

VanEck Oil Refiners ETF (NYSEARCA:CRAK)

The first we will mention is CRAK, named after the spread of crack through which refiners make a profit. In our last coverage on how sanctions affect oil stocks, we were a bit ambiguous about our position on the price of oil because it had gotten so high. We said the regulatory environment would improve, which could mean more reinvestment opportunities for US players in particular. We even recommended E&P companies which we would no longer do as the price of oil fell $130 a barrel and our thinking has evolved as we now consider that oil could pull back even further than the $100 level per barrel, so companies with operating leverage on the price of oil would be less savvy at this time.

There are several good reasons why we think traders are worried about oil prices:

  • The first relates to what we mentioned earlier, which is that Biden will potentially involve oil from Iran and Venezuela in the Western trading bloc. Previously, we had not considered how significantly supply might be affected by these countries joining. We also weren’t sure that Russia would let much progress happen on the Iranian front, because they are in between. But it seems explicit since March 16 that Russia has been appeased in other areas, and they say they will not obstruct the talks. The introduction of this offer has therefore effectively become more likely in the medium term.
  • Although this is even more speculative and something we haven’t mentioned before, there is even speculation about the return of fracking in England. This was at one point a major campaign point for David Cameron, but there was so much public opposition that it became impossible to support him. How much oil could come out of UK reserves is still unclear as exploration hasn’t gone that far, but according to some estimates up to 22% of UK gas consumption could come from local sources , which is not negligible. Although not given explicitly, oil production could also be significant, as is the case in the United States, where the ratio is around 1:1 with gas. While the negative reactions to the push for renewables could become more evident as higher energy prices burn holes in consumers’ wallets, the push for renewables is already being blamed by oil lobbies for dependency towards Russia, it’s still a more speculative position that UK fracking could be revitalized and bring more oil to market, but it’s a relevant factor.
  • Then there is also the fact that there has been a lot of discipline from OPEC countries in the wake of COVID-19. They rightly believed that a high oil price could be sustained while the United States refrained from flooding the market with its ability to capitalize. If more oil enters the trading bloc anyway, such as that of Venezuela and Iran, OPEC could change its position and turn on the taps, which have been turned on only sparingly so far. Even without their production being added to the mix, governments could eventually convince OPEC to lower prices by using some of their excess capacity.

We also commented on refiners in our last article. We reported that product spreads on diesel in particular were improving despite the rally in crude oil. With our new stance that oil could deteriorate, we are increasingly optimistic about commodity spreads in general going forward. While cracked oil needs will remain the same for Europe, with traders rejecting Russian supply, often from Caucasian refiners, this gives refiners a chance to process crude oil which is still traded (except with United States and United Kingdom). ) to have more added value. This would continue to be the case with Iranian and Venezuelan production entering the western bloc, as they are unlikely to have high complexity refining capacity like the Gulf Coast or some European refiners have given their age and location, and Iranian and Venezuelan crude is mostly sour and needs those high complexity refineries. Prior to these potential developments, refiners will continue to benefit from the dislocation due to Russia’s disintegration from the trading bloc, so they remain an attractive choice regardless.

The reason we would choose CRAK as the vehicle for this game is that it holds both the Gulf Coast and even some European refineries, giving you such wide exposure to different logistics environments to diversify risk. CRAK still hasn’t seen any significant price increases either. However, there are risks, with crack spreads being quite volatile and the possibility that crude prices will only continue to rise if no additional production comes to the rescue. At least the winter season is over, which tones things down a bit.

refiner etf price

CRAK Award (Google Finance)

Global X Copper Miners ETF (NYSEARCA: COPX)

The other note we would give ETF investors is to consider copper’s role in European and US national security concerns. As Russia moves to invade Ukraine, questions have arisen about Taiwan, where some of the most advanced semiconductor manufacturers are located. Europe and the United States are considering how to improve their position in terms of semiconductor supremacy. Industry commentators fear this will cause stiff competition for scarce resources and we take it a step further and believe it could even lead to the hoarding of raw materials like copper. It would be good for copper miners. While the push for renewables may have some backlash, it will not reverse the story of EVs, nor that of power grids, whose grid operators aim to increase electrification capacity. If copper also becomes a strategic resource, it could hold its new levels.

Copper miners ETFs

COPX Award (Google Finance)

We chose COPX for its rich mix of businesses in different logistical situations, where logistical concerns could become idiosyncratic risks for individual players, depending on where they operate. We diversify this risk a bit with COPX. The downside here is that no miner is fully exposed to copper. There will be iron ore and even coal exposure with stocks like BHP Limited (BHP). Nevertheless, it is better to own the producer than the commodity, as Warren Buffett would always say.

xopx holdings

COPX Funds (overall X)

MSCI Norway (BATS: ENOR)

Finally, we point out the ENOR ETF. While it may seem contradictory at first glance to both worry about a drop in the price of oil while betting on Norway, a major oil-producing country, in the case of this ETF it is not the case.

gold assets

ENOR Holdings (MSCI)

Equinor (EQNR) accounts for 16% of this ETF, but close behind are DNB Bank (OTCPK:DNBBY) as well as Norsk Hydro (OTCQX:NHYDY), Mowi (OTCPK:MHGVY) and Telenor (OTCPK:TELNF). Then come some insurance companies among others. The thing is, oil prices and E&P profitability aren’t exposed too much here.

  • With DNB, you are essentially betting on the health of the Norwegian economy. Housing is hot, I grant you, but creditworthiness is not a concern at all, and the rise in rates will be good for DNB.
  • Norsk Hydro is fully vertically integrated and therefore hedged against inflation risks on the input side. In addition, aluminum has renewable markets in the expansion of electrical networks and their capacity.
  • Mowi is a great choice right now due to rising wheat prices. They produce their own feed for aquaculture, and salmon may see increased profitability as people go paleo and keto to avoid higher grain costs.
  • Telenor is your typical trusty telco, nothing bad about that.

The disadvantage of ENOR is that it is not very diversified. These companies produce cash in NOK, which is always linked to oil prices, and Norway is a relatively smaller economy. Additionally, the ETF itself is quite biased against these early holdings in terms of performance. But if you want to take a more agnostic view of oil while still wanting inflation-protected exposures to other commodities, this is for you.

Conclusion

Commodities generally rallied. They were already rallying before the invasion of Ukraine on the basis of mainly supply-side issues. We think these issues will start to ease partly because of the upcoming interest rate hikes, but also because capacity is simply taking time to build in the context of increased demand for goods versus services. . Nevertheless, there are so many inflation risks today that you need to be covered. These ETFs are hedged against various inflation risks and even have their own stories that could justify stronger performance from these levels. We now believe that oil could fall, to the benefit of refiners, and that copper could become an essential strategic resource. If you prefer to take a more agnostic bet on oil, bet on Norway but with an ETF that disproportionately includes its other sectors, such as a healthy banking system and salmon which could well push consumption habits from oil-based products. protein cereal.

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