The Institute’s Benefits Papers provide an analysis of risk and return benefits of Hedge Funds, Hybrid Funds, Managed Futures, Commodities, Private Equity and Real Estate when considered as part of an investor’s overall portfolio. Updated on a yearly basis to keep abreast of recent developments, the Benefits Papers specifically evaluate risk and return performance of portfolios constructed from adding alternative investments to established U.S. stock and bond portfolios.
THE BENEFITS OF COMMODITIES
For many investors, commodity investment has been achieved primarily indirectly through equity-based firms for which commodities are a primary source of their business. While various direct commodity investment vehicles have existed for decades, only recently has direct commodity investment been seen as an alternative to indirect equity-based investment with the rapid surge in energy prices and the increasing global demand for commodities. In this annual update, the return and risk characteristics of various commodity indices are reviewed. Results show that traditional market factors have little correlation with a wide variety of commodity sectors (energy, metals and agriculture) and commodities may provide both a return opportunity as well as risk diversification for portfolios comprised principally of traditional stock and bond investments and/or portfolios comprised of traditional stock and bonds as well as alternative investments such as private equity, real estate, hedge funds and managed futures. In addition, results also show that commodity returns may be accessed through an increasing array of product structures, some of which are designed to reduce the historical drawdowns often associated with commodity investment.