iShares, VanEck Vectors commodity ETFs lead comeback as supplies dwindle

Commodities have been a four-year fit of agony for investors, but their nightmare may be drawing to an end. The Bloomberg Commodity Index, which measures a broad basket of commodities, is up nearly 20% from its Jan. 20 low. Part of that rise is oil, which broke through the $50 barrier briefly last week and is now selling for about $49 a barrel, up from a Jan. 20 low of $26.68. But it's not just oil prices that are rising. Gold, which hit $1,051 an ounce in December 2015, has risen to $1,243, an 18% gain. Copper, often called “the metal with a Ph.D. in inflation, is up 9% from its January low. And corn has grown 21% since its March bottom. Plenty of factors can affect commodities, from rainfall in the Midwest to labor strikes in South Africa. But low prices have meant lower production as mining companies limit output or shut down altogether. Currently, for example, copper warehouse stocks at the London Metal Exchange warehouses are near five-year lows, according to Kitco, a metals broker. So are aluminum, zinc and lead stocks. Heavy rains and a rise in soybean prices has prompted some farmers to switch from corn to soybeans, pushing up prices, says Gary Kamen, chief market strategist at Trends in Futures, part of the Commodity Research Bureau. “I've heard that 1 million to 3 million acres have switched to beans,” Mr. Kamen said. Not surprisingly, funds that invest in commodities or the stocks of commodity producers have fared well. Equity gold funds, which invest in gold-mining stocks, have soared 68.41% this year, according to Morningstar. Natural resources funds are up 10.51%, and diversified commodity funds have gained 7.62%. These companies, obviously, have been beaten down severely the past five years — the average gold-mining fund has lost an average 13.74% annually the past five years, despite their massive gains this year. Broad-based commodity funds have shed 11.9% a year. Even coal, which has seen hundreds of mines close worldwide, is riding the commodity rally. The VanEck Vectors Coal ETF is up 28.32% this year, after falling 55.41% in 2015. And stock markets of countries that are major commodity exporters have benefited from the rise in prices — as well as the recent fall in the dollar. The iShares MSCI Canada ETF has gained 13.86% this year, while the iShares MSCI Brazil Capped ETF has soared 31.8%, despite that country's myriad political and economic problems. CORRECTION: This story was updated to reflect that Market Vectors ETFs have been rebranded as VanEck Vector ETFs.