Despite a disappointing year for gold and silver — the two most widely observed commodities — broader commodity strategies are continuing to deliver for investors.

Just look at the actively managed ALPS CoreCommodity Natural Resources ETF (CCNR). To be sure, the $419.3 million CCNR, which turned two years old earlier this month, is an equity-based commodity play. While that exposes the ETF to stock market volatility, CCNR is up 14.47% year to date, even as spot prices for many bellwether commodities slump.

Given the fund’s strong showing through mid-July, prudent investors may be apt to worry that they’ve missed the CCNR party. However, history suggests that things could just be getting started, as major commodity bull markets are typically measured in years, not months.

“Commodity cycles often develop over long periods. They rarely move in a straight line, and rising prices alone don’t typically mark the end of a cycle,” noted Morgan Stanley. “More often, they end when supply finally catches up with demand — a process that can take years, and in some cases, a decade or longer.”

More Gas in the CCNR Tank?

CCNR allocates more than 40% of its weight to the energy sector. This immediately indicates that the ETF is benefiting from the high oil prices created by the war in Iran. However, even if the war ends over the near-term — a seemingly unlikely prospect — that doesn’t mean CCNR’s energy holdings will suffer. The reason is that many energy producers aren’t rushing to bring new supply to market simply because oil prices are temporarily elevated.

“In commodities, the process by which higher prices attract new capital is typically slow. New oil production, refinery capacity, mines, processing facilities, pipelines and transportation infrastructure all require investment, regulatory approvals, equipment and time,” added Morgan Stanley. “Metals projects, for example, can take well over a decade to move from discovery to meaningful production. Higher prices may eventually alleviate shortages, but they rarely solve them immediately. Until new supply arrives, markets often rely on inventories, substitutions or demand destruction.”

CCNR also allocates more than a third of its weight to the materials sector, indicating that the ETF has some leverage to base metals — a commodities segment on which Morgan Stanley is bullish.

Only time will tell, but the stars appear to be aligning for this ETF to build on its strong year-to-date momentum.

“Commodity bull markets are often measured in years, not months,” concluded Morgan Stanley. “Today’s environment remains supported by constrained supply, resilient demand and long investment lead times. That suggests commodities may still deserve investor attention, even after recent price strength.”

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