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Revisting the Value of Commodities
Diversification benefits outweigh the sector’s recent lackluster results.
Let’s face it: Commodities are out of favor. After a lackluster 2013, commodities (represented by the Bloomberg Commodity Index) continued their slide in 2014 — down –11.83 percent in the third quarter and down –8.68 percent for the year to date ending Oct. 31, 2014.
It is in times like these when investors might begin to reconsider why they hold a commodity allocation at all. In fact, many do abandon ship during an asset class’s darkest days and, unfortunately, this may result in the dreaded “selling low and buying high” syndrome that we humans are so good at!
Instead, I suggest we revisit the value of having — and keeping — a strategic allocation to commodities as part of a well-diversified portfolio. After all, in most cases an investment in commodities is not a short-term tactical move but rather part of a long-term st