Investors keen on critical materials exposure have a new exchange-traded fund (ETF) to consider.
USCF – an Oakland-based asset manager specializing in commodities-based funds – has launched the USCF Aluminum Strategy Fund on the New York Stock Exchange under the ticker “ALUM.”
As an actively managed ETF, ALUM trades aluminum-based derivatives – both on U.S. and international markets – to provide returns matching the long-term price performance of aluminum.
Although aluminum futures are its main allocation, the fund will also deal in forward contracts, cash-settled options, and other instruments. Unlike some other commodities-targeting ETFs, ALUM does not try to track any specific benchmark or index.
The money manager sees the commodity is on an upward trend.
“Trading in aluminum futures has grown dramatically over the last year,” said John Love, president and CEO of USCF Investments. “The CME reports nearly triple the number of open contracts and double the number of traders since last September.”
Commodity of the Future?
There is a short and long-term bull case to be made for aluminum.
The metal is nearly the most commonly used metal in society, second only to steel. It is ubiquitous around the world – used to make everything from beer cans to satellites. What’s more, over the long term, it is well-positioned to benefit from the secular trend toward renewable energy sources.
Last year, Cru International predicted aluminum demand will increase by 40% by 2030.
“As we seek a sustainable future in a decarbonized world, aluminum has the qualities that consumers seek – strength, lightweight, versatile, corrosion-resistant, a good conductor of heat and electricity, and is recyclable,” said International Aluminium Institute (IAI) Secretary General, Miles Prosser at the time of Cru’s forecast.
According to the International Energy Association, aluminum is vital for several key green technologies, including lightweight vehicles and solar energy. However, the IEA also notes that “direct emissions from the global aluminum sector have been steadily rising over the past decade” and that decarbonizing is needed in its production process to help reach Net Zero Emissions by 2050.
On a shorter-term horizon, it can also shield investors from price creep. Commodities are typically sought out as a hedge against inflation, which has reached historic levels in the post-pandemic period. Aluminum gives investors an alternative industrial metal that can complement a basket of mainstay safe haven assets, like gold or silver.
Yet, this hedging effect does not make its price action inherently stable.
The fund’s prospectus warns that price fluctuations “may be magnified by computer-driven algorithmic trading, which is becoming more prevalent in the commodities markets.”
It also notes: “Exposure to the commodities markets through investments in Aluminum Derivatives may subject the Fund to greater volatility than investments in traditional securities.”
ALUM comes with an expense ratio of 0.65%.