Rebecca Holden, CFA’s Post

Commodities for the Long Run? In this article for Enterprising Investor for the CFA Institute, PGIM colleague Jeremy Stempien and I explore how the optimal allocation to commodities changes by investment horizon (using long-term historical data). This piece is a derivative of our larger Research Brief titled “Investment Horizon, Serial Correlation, and Better (Retirement) Portfolios” (link below). Long story short, commodities don’t/haven’t looked that great if you focus on (individual) calendar year returns, but they become increasingly attractive as a diversifier for longer-term investors (e.g., moving from an investment horizon of one year to ten years). In this article, we extend some of the original analysis by re-centering historical returns using forward looking expectations. Commodities have underperformed equities by around 600 bps historically, with a similar level of risk, but forward-looking expectations only have performance about 200 bps lower (but with similar levels of risk as equities). This tightening makes commodities look significantly more attractive than the pure historical analysis. Jeremy and I have been exploring how investment horizon affects other aspects of portfolio construction… so stayed tuned for more hot thoughts concepts on this topic (hat tip to Allen Reece for the idea!). Enjoy! Enterprising Investor piece: https://lnkd.in/eiThkzaR Research paper: https://lnkd.in/eNRgHk7n

Below are creative ways to invest—including investing in commodities.

If you’re an investor looking to grow your assets over time, it’s critical to understand why commodities may have a place in your portfolio.

If you’re an investor looking to grow your assets over time, it’s critical to understand why commodities may have a place in your portfolio.

If you’re an investor looking to grow your assets over time, it’s critical to understand why commodities may have a place in your portfolio.

If you’re an investor looking to grow your assets over time, it’s critical to understand why commodities may have a place in your portfolio.

If you’re an investor looking to grow your assets over time, it’s critical to understand why commodities may have a place in your portfolio.

If you’re an investor looking to grow your assets over time, it’s critical to understand why commodities may have a place in your portfolio.

If you’re an investor looking to grow your assets over time, it’s critical to understand why commodities may have a place in your portfolio.

If you’re an investor looking to grow your assets over time, it’s critical to understand why commodities may have a place in your portfolio.