Ever since the Great Recession, it’s been a mixed bag for investors in natural resources. Though driven by the expanding emerging world, prices for commodities — with the exception of energy — haven’t really approached their pre-recession highs. From lower growth in key markets like China to oversupplies of several metals and minerals, commodities as a whole have been a terrible place to park your money over the last three or four years.

That could make them an ideal bargain play.

Aside from their diversification benefits, the overall stronger global economy has some of the supply-demand dynamics finally working in investors favor. And after the recent slide in risk assets, the time to buy could be now. (For related reading, see: Investing In Commodities Without The Hassle: Try Commodity ETFs.)

Big-Time Bargains

Before and immediately after the Great Recession, commodities were one of the best assets classes. Driven by expanding economies across the globe, demand for iron ore, copper and other materials surged. The broad S&P GSCI – which tracks a basket of various hard asset futures — returned 25% during the two years following the recession. That run didn’t last, though. The S&P GSCI is down by just over 6% since then.

And commodities returns have gotten worse lately. (For more, see: It's Time To Invest In These Three Commodities.)

As investors have dumped “risk” assets in recent weeks, the majority of commodities have fallen. In fact, for July natural resources managed to put up their worst monthly loss since May 2012. The S&P GSCI lost 5.3% in July and basically gave back almost all of its gains for the year. With such losses at their backs, commodities seem like the last possible place investors would want to place their money.

Rising Demand, Slack Production

But as the saying goes, be greedy when others are fearful — especially if you consider that many of the same bullish tailwinds for commodities that propelled them in the years leading up to 2008 are gaining velocity or have never left.

Long term demographic trends are still in place. The world's population will grow to nearly 8 billion by the end of century. That growth will require mounds of of natural resources. Meanwhile, supply is relatively low; as the recession and price collapses took hold, miners and other hard asset firms cut production and idled mines in a big way. For the vast bulk of commodities, supplies are now below expected demand rates. In the short run, our growing global economy should light a fire under various commodities as GDP expands.

All in all, the medium- to long-term picture for natural resources looks rosy, even when viewed through the lens of years of losses. (For more, see: Is Now The Time To Buy Commodities.)

Betting On Commodities ETFs

Given the potential for long term gains — without even including commodities' other portfolio benefits — investors should consider the natural resources space. A prime stop is the iShares S&P GSCI Commodity-Indexed Trust (GSG). The ETF tracks the previously mentioned index of natural resources via futures contracts.

Currently, GSG is weighted around 73% in energy, 17% in agriculture and 10% in metals and minerals. That provides investors with a broad mix of commodities within one ticker and is much easier and cheaper than playing the individual futures market. Expenses for GSG run just 0.75% a year and investors will receive a K-1 statement during tax-time. The major drawback of the index and the ETF is that heavy weighting in energy futures. To that end, both the PowerShares DB Commodity Index Tracking Fund (DBC) and the iPath Dow Jones-UBS Commodity Index Total Return ETN (DJP) offer more balance to their respective underlying holdings. Although, energy still plays a major part of the funds. (For more, see: The Most Affordable Commodity ETFs.)

Betting On Underlying Commodities

Another option for investors: playing the firms that extract the underlying commodities. Earnings for the hard asset players have floundered over the last few years. However, any incremental rise in commodity prices will trickle down to these firm’s bottom lines. The FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR) tracks 123 different global companies in the energy, metals and agriculture sectors. Top holdings for the fund include giants like mega-miner BHP Billiton (BHP) and ExxonMobil Corp. (XOM). Expenses for GUNR run just 0.48%. More importantly, the ETF has managed to outpace rival funds — like the Market Vectors Natural Resources ETF (HAP) — in the returns department.

Finally, investors shouldn’t just focus on traditional commodities. The same bullish tailwinds that are propelling oil, copper and corn are present in esoteric natural resources like water and timber. Both the Guggenheim Timber ETF (CUT) and First Trust ISE Water Index (FIW) allow investors to tackle these “weirder” commodities with ease.

The Bottom Line

Commodities have spent much of the previous four years in the basement. That makes them an interesting bargain in today’s shaky market, especially when you consider that many of the underlying factors that could propel the asset class have either never left or are gaining steam. (For related reading, see: Should You Invest In Stocks Or Commodities In 2014?)

Related Articles
  1. Mutual Funds & ETFs

    Investing In Commodities Without the Hassle: Try Commodity ETFs

    Exchange-traded funds (ETFs) that invest in commodities offer a convenient, low cost way to access the commodities markets.
  2. Chart Advisor

    It’s Time To Invest In These Three Commodities

    Strategies to track and trade some ETFs and ETNs that are used to follow commodities such as coffee, oil and gold.
  3. Chart Advisor

    Is Now The Time To Buy Commodities?

    Is now the time to bet on agriculture, energy and industrial metals? Check out the chart of this ETN and decide for yourself.
  4. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  5. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  7. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  8. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  9. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!