The Drivers of Commodity Returns: Supercycles, Commodities Factors and Asset Allocation
Here are some of the top papers on strategic commodity allocations that have been released recently.
Commodities are often thought of as an inflation hedge. Given that wage inflation is on the rise in the United States, is now the time to (re)consider commodities as a strategic allocation?
Several papers below take a long-term perspective on commodities prices, examining commodities supercycles that date as far as the mid 19th century. Others present the case for individual commodities allocations such as gold or liquified natural gas, while Invesco discusses a framework for the construction of a multi-factor strategy for commodities allocations.
In this paper, the authors explore both risk-based and factor-based alternative beta indices for commodities, focusing particularly on the latter.
This brief article looks at both output and prices of 15 different commodities over a 140-year time span in order to provide insight about historical demand and supply shocks.
There are two main aims of this paper. The first is to recognize and compare super-cycles occurring successively in real commodity prices, while the second is to provide in-depth views on the recent cycle of commodity prices on a long-run basis, done by examining how global changes in output levels relate to commodity prices cycles.
Parametric looks at commodity returns in previous inflationary periods, finding that in the case of unexpected inflation, commodities may fare better than other asset classes at weathering the storm, due to higher forward prices.
Throughout this paper, the authors discuss the development of a new paradigm for the behavior of forward curves for commodities affected by seasonal factors.
This paper is a follow-up from a paper written Gorton and Rouwenhorst in 2006 where, using data from July 1959 to December 2004, they examined commodity futures returns based on an equally-weighted index. Reviewing their conclusions ten years later, they find that their conclusions out-of-sample, largely hold up.
This study covers 30 commodities over a 160-year period, aiming to completely classify real commodities prices, including trends over the long-run, as well as cycles in the medium-run, showing short-run patterns of booms and troughs.
Although slightly dated now in terms of a representative outlook for the commodities sector, many of the reasons within this paper are actually longer-term reasons to consider strategic allocations to this sector.
PIMCO defines and shows how to properly calculate roll yield and carry in the context of commodity investing. They also include a relevant case study on gold futures.
This is a primer for both public and private investments in natural resources that also provides support for a strategic allocation to natural resources within multi asset portfolios.
Mark Mills of the Manhattan Institute examines America's liquified natural gas industry and the market for LNG exports in a world newly flush with shale oil and gas.
The disruptive change of the ‘shale revolution’ has forced existing producers to adapt while reducing OPEC’s pricing power. LGIM expects further far-reaching changes to take effect in the coming years.
State Street Global Advisors presents the case for gold as a core diversifying asset with a long term strategic role in portfolios.
Global megatrends make it more important to invest differently to benefit from opportunities in smart materials, says specialist Pieter Busscher.
This quantitative paper examines when portfolio diversification is achieved through the introduction of commodity futures by looking at risk standardization and other risk-return tradeoffs.
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