Why Commodities?
Commodities exhibit interesting risk-return profile. Commodities not only offer a good way to diversify a portfolio of stocks and bonds, they often offer better returns. A research done by Yale, says about
- Since 1959, commodities futures have produced better annual returns than stocks returns and outperformed bond returns even more.
- During the 1970s, commodities futures outperformed stocks; during the 1980s the exact opposite was true - evidence of the"negative correlation" between stocks and commodities that many of us have noticed.
- The returns on commodities futures "positively correlate" with inflation. Higher commodity prices were leading a wave of high prices in general (i.e., inflation), and that's why commodity returns do better in inflationary times, while stocks and bonds perform poorly.
- The returns on commodities futures were "triple" the returns on stocks in companies that produced the same commodities.
Global Institutional investor interest in commodity trading has increased significantly over the past few years. This, in part, reflects powerful cyclical and structural forces working in favor of commodity market, while, also the realization of the need to diversify personal investments into upcoming and popular financial products.
