Commodities

Abstract

This article highlights recent arguments for favorable macro conditions for commodities investments, including cyclical properties, inflation hedging characteristics, and global demand and consumption matters. The author documents a variety of the limitations inherent in passive commodities investments when long-only total return indexes are used and hypothesizes that the commodities asset class has a number of distinct characteristics that make it particularly suitable for skillful active managers to find alpha opportunities. He tests the hypothesis using two equally weighted portfolios of actively managed commodity strategies. His results show that active management in commodities can indeed provide superior performance to investors.