Commodities In Trust Portfolios

, By David Rosenberg, head, U.S. Investment Solutions, and Ajay Badlani, head, U.S. Investment Analyti

By David Rosenberg, head, U.S. Investment Solutions, and Ajay Badlani, head, U.S. Investment Analyti

While investing in commodities ranks among the oldest of financial endeavors, commodities today are underrepresented in most trust portfolios because of the widespread perception that they represent a volatile and risky asset class. Also, investing in commodities themselves has produced over the long term a return that is roughly equal to the rate of inflation.

But a more in-depth analysis shows that historical returns for commodities-futures indexes demonstrate a low correlation with both equities and bonds. Thus, including a commodity-futures index in a portfolio of stocks and bonds could reduce risk in most portfolios, making them a suitable asset class for consideration under the Uniform Prudent Investor Act (it may vary from state to state). Moreover, the historical returns investing in a broad-based commodity-futures index have exceeded those of both stocks and bonds over the very long term.

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