From the desk of Willie Delwiche.
Moving into commodities when they are trending higher versus stocks increases return and lowers risk relative to otherwise static equity exposure. Commodities may not always earn a spot in our portfolios, but we do well to remember to include them in the asset allocation conversation.
Why It Matters: Commodities can go nowhere for years on an absolute and relative basis. 90% of the time from 2012 through 2020, the CRB index was in a downtrend relative to the S&P 500. During that time period commodities got the reduced portfolio exposure that they deserved. In many cases they got dropped from the conversation all together. Commodity leadership of the last couple of years revealed that to be short-sighted. With commodities cooling off and stocks again getting the upper hand on a relative basis, we can reduce our exposure, but let’s not exclude them from the conversation. As long as an asset has a seat at the table, we can choose to minimize our exposure to it. But it is difficult to have exposure to an area that isn’t even discussed. Investors benefit when commodities are kept in the conversation even if that doesn’t result in portfolio exposure.
Inside we take a Deeper Look at commodity trends over time, how they have provided portfolio ballast of late and why that could be changing going forward.
