BCX: Examining Inflation Protection Benefits And Recession Risks

2025-03-24 07:41:05 ET

Summary

• The BlackRock Resources & Commodities Strategy Trust offers a way to gain commodities exposure while earning a high level of income, making it attractive for inflation protection.
• Commodities, especially energy and agricultural ones, have historically performed well during inflation, providing a hedge against the loss of purchasing power.
• The fund's recent performance has outpaced the S&P 500, delivering a YTD gain, showing the benefits of having commodity exposure.
• Trading at a 9.36% discount to NAV, the fund offers a compelling valuation compared to its peers, with an 8.99% yield and monthly distributions.
• The fund has fully covered its distributions year-to-date, although it did fail to cover them fully for the full-year 2024 period.

The BlackRock Resources & Commodities Strategy Trust ( BCX ) is a closed-end fund that may appeal to those investors who are seeking to add commodities exposure (or increase their existing commodities exposure) to their portfolios while still earning a very respectable level of income. There could be some reasons to consider having some commodity exposure in your portfolios. One reason is that commodities are historically a very good way to protect your wealth against the loss of purchasing power that accompanies inflation. Back in June, Goldman Sachs ( GS ) released a report showing how commodities can protect your wealth in an inflationary environment. From that report:

Investors are alert to US inflation risks as corporate earnings exceed expectations, the US persistently runs large budget deficits, and because of the opportunity for inflationary policies following the presidential election. Commodities have demonstrated strong resilience in the face of inflation and have been a critical hedge for bonds and equities when prices and wages are climbing, according to Goldman Sachs Research.

A 1 percentage point surprise increase in US inflation has, on average, led to a real (inflation adjusted) return gain of 7 percentage points for commodities, while that same trigger caused stocks and bonds to decline 3 and 4 percentage points, respectively, writes Daan Struyven, head of oil research in Goldman Sachs Research, and analyst Lina Thomas in the team’s report.”

This report also includes this chart that shows the magnitude of the superior returns provided by commodities compared to common stocks and U.S. Treasury securities in an inflationary environment:

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