The News Radar

Timely links to external news and articles, usually valuation related, with occasional commentary.


Originally posted Thursday, 14 July 2022
Commodities Never Belonged in Your Portfolio

If investors get in at a peak chasing fad portfolio construction techniques, the returns can be much worse.

The Bloomberg Commodities Index is a good illustration. On a spot basis, it is up 351% in the past two decades, a respectable 7.8% compound annual growth rate that’s just slightly behind the S&P 500 Index’s 9.3%. But that’s not what investors earn when they invest through financial instruments because it doesn’t account for the cost of rolling such futures contracts. Among other things, there’s a sizable cost associated with storing barrels of crude oil, tanks of natural gas and bushels of wheat. In part because of these additional costs, the total return version of the same index — based on financial instruments that track the commodities — is up only 50% in the same period (a meager 2% compound annual growth rate).

Chasing fads pretty much everywhere and always results in lower performance over the long term than a simple diversified buy-and-hold strategy.