Last week, I discussed “How to Play the Venezuela Takeover.” In that article, I suggested investing in commodity producers since I believe they will be the ultimate beneficiaries of consolidation in the oil and mining industries. Fewer suppliers mean less competition, which should give producers more control over wholesale prices.

To be clear, I was not opining on the legality or morality of that event. From what I can discern, most world leaders agree that something needed to be done. Whether or not this was the right way to do it is up for debate, which is outside my purview as an investment analyst.

That said, this situation is far from over. In fact, it has only just begun. Regardless of how you or I or anyone else feels about, it is going to have repercussions that radiate around the world and decades into the future. As an investor, you should factor that into your portfolio decisions even if you strenuously object to the manner in which it came about.

Risk Management

Making a portfolio adjustment to this event is not the same thing as profiteering. Managing risk is a core tenet of portfolio construction. You may disagree with what occurred while making adjustments in response to it to manage risk at the same time.

From a financial perspective, I view this no differently than responding to previous “black swan” events such as the coronavirus pandemic. Whether or not the COVID-19 outbreak was an intentional act or a horrible mistake is irrelevant from an investment perspective. The bottom line is that it happened and ignoring it won’t change the way in which it may affect your portfolio.

That is why I advocate taking a proactive approach to these types of events. This is not profiting from someone else’s misery. It is managing risk to protect your assets from a new variable that previously did not exist. In that regard, this is no different than hedging your portfolio against other geopolitical events that can change longstanding relationships among and within asset classes.

A New Threat

Now, a new threat to the global commodity markets has emerged. The White House has stated its desire to wrest control of Greenland’s extensive metals and mineral reserves by any means necessary, including military force if a financial deal cannot be made.

For the record, I object to forcibly taking assets from a country with a legitimately elected leader that poses no direct threat to the United States. In that respect, this situation is quite different from the circumstances that led up to the Venezuela incursion.

Nevertheless, my opinion on that possibility doesn’t matter, either. I hope it doesn’t happen, but I’m not going to ignore it for that reason. If the USA gains controls of Greenland’s most valuable commodity reserves, then that will trigger repercussions in the global financial markets for years to come.

Own the Sector

In that case, having exposure to metals and minerals in your portfolio is one way to hedge against inflation. Those materials are integral to the production of a wide array of consumer and industrial products. If the cost of acquiring those materials goes up, so too will the price of the products that use them.

The easiest way to do that is to own shares of a mutual fund such as the State Street SPDR S&P Metals & Mining ETF (NYSE: XME). According to the fund sponsor, its objective is “to provide exposure to the metals & mining segment of the S&P TMI, which comprises the following sub-industries: Aluminum, Coal & Consumable Fuels, Copper, Diversified Metals & Mining, Gold, Precious Metals & Minerals, Silver, and Steel.”

The fund’s assets are currently allocated 32 percent to steel, 20 percent to coal & combustibles, 16 percent gold, 9 percent aluminum, 5 percent silver, 5 percent copper, and 13 percent diversified metals and mining. Last week, the fund’s share price jumped 10 percent as Wall Street immediately recognized the implications of the Venezuela takeover.

My guess is the White House will back away from its threat to use military force to obtain Greenland’s hard assets. In that case, this fund could just as quickly give back the gain that it made last week. But if the Trump administration makes good on its promise to obtain those assets by whatever means necessary, then last week’s gain could just be the tip of the iceberg.