By , June 16, 2014
Diversification is harder and harder to come by these days as globalization has integrated world markets. Still, commodities remain a source for diversification, especially if you look beyond generalizations of commodities being defined as just oil and gold. When you include agricultural commodities, and drill down into the actual supply and demand metrics for a specific commodity; it is much easier to find commodities with a low correlation to the broader equity markets.
Investing in commodities brings a whole new set of factors for consideration when evaluating them for a portfolio. Commodity prices react more to “supply shocks” than demand changes. The challenge here is such shocks are nearly impossible to predict as many are based on weather patterns or other such macro events. As news hits of these events, commodity markets can move quickly to account for the new information.
Still, as we believe, investing is about managing probabilities. If more and more data support an appreciation in price of a commodity over time, adding such an asset to your portfolio can present a great opportunity to increase return while moderating risk.
Other posts from
April 24, 2017
April 24, 2017
The start of the year saw a continuation of positive returns in the first quarter as global markets speculated on a spark in world growth initiated by the election of Donald Trump in the United States. Trump’s unique background and style suggested that the new president would be able repair some of the historically wide rift that has separated Republicans and Democrats.
January 12, 2017
During the first quarter, U.S. equities continued the strong advance experienced during the fourth quarter of 2016.
For the three months ending March 31st, the Dow Jones Industrial Average posted a 4.6% gain while the S&P 500 Index rose 5.5%. The stock market has been resilient due to robust corporate earnings as well as employment growth and positive economic data which have undergirded this upward advance.
Equity markets finished 2016 on a high note as markets rallied on a shocking surprise in the U.S. election. The election of Donald Trump for President of the United States was the most recent example of “low probability” events actually occurring and disrupting markets. This happened a few times in 2016, but none so dramatic as the Trump victory.