Publications

- December 1, 2016; Vol. 3, Number 12

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The Role of Commodities in the Diversified Portfolio: Since 1800 the average bear market lasted nearly 20 years while the average bull market only 16 years

by Michael Serio, David Roda, John Lynch, Cam Hinds, Marc Doss, Sean McCarthy and Kei Sasaki

Few investable asset classes create more passion, enthusiasm and controversy than commodities — especially gold. With the recent significant drop in industrial commodity demand due to slowing world growth and the oversupply in oil, investors have been asking hard questions about whether commodities should be considered for inclusion in a well-diversified portfolio. Others have questions about how they should access different sub-asset classes and how they should allocate across various commodities.

Using history as a guide, we are potentially in a long, flat commodities market. The past five years have seen some prices fall by as much as 75 percent (as in the case of oil) off of their decade highs. While commodities could take years to get back to the highs last seen in 2011, there are still opportunities.

POTENTIAL EFFICACY

In the world of portfolio management, commodities include precious metals (such as gold), industrial metals

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