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The Drivers of Commodity Returns: Supercycles, Commodities Factors and Asset Allocation

  • Posted by: ,  Chief Executive
  • 15 January 2019
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Top Papers on Strategic Commodity Allocations

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.

strategic commodities allocations

Risk & Reward Q4 2018: a factor-based commodity strategy (Invesco)

For compliance reasons, this paper is NOT accessible in the United States

The first article in this quarterly publication examines how to implement a multi-factor commodity strategy that goes beyond simply using commodities as an inflation hedge.

Risk & Reward Q4 2018: a factor-based commodity strategy (Invesco)

For compliance reasons, this paper is only accessible in the United States

The first article in this quarterly publication examines how to implement a multi-factor commodity strategy that goes beyond simply using commodities as an inflation hedge.

Alternative Beta Strategies in Commodities

In this paper, the authors explore both risk-based and factor-based alternative beta indices for commodities, focusing particularly on the latter.

Drivers of commodity price booms and busts in the long run (VoxEU, 2018)

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.

Super-cycles of commodity prices since the mid-nineteenth century

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.

Expect the Unexpected: The Role of Commodities During Periods of Unexpected Inflation (Parametric, 2018)

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.

Seasonal and stochastic effects in commodity forward curves (2007)

Throughout this paper, the authors discuss the development of a new paradigm for the behavior of forward curves for commodities affected by seasonal factors.

Facts and Fantasies About Commodity Futures Ten Years Later (2015)

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.

From boom to bust: A typology of real commodity prices in the long run

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.

15 Reasons to Take a Closer Look at Commodities (Cohen & Steers, Jan 2018)

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.

Why Commodity Carry May Be Higher Than You Think (PIMCO, Aug 2018)

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.

Natural Resources: An introduction (Meketa Investment Group, 2018)

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.

The Real Fuel of the Future: Natural Gas (Manhattan Institute, 2018)

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.

Long-Term Energy Fundamentals - All Hail Shale (LGIM, April 2018)

For compliance reasons, this paper is NOT accessible in the United States and Canada

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.

The Case for Gold as a Strategic Allocation (State Street Global Advisors blog, May 2018)

State Street Global Advisors presents the case for gold as a core diversifying asset with a long term strategic role in portfolios.

Smart investing in smart materials (Robeco, 2017)

Global megatrends make it more important to invest differently to benefit from opportunities in smart materials, says specialist Pieter Busscher.

Diversification Effect of Commodity Futures on Financial Markets (REITI, 2018)

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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