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Is it the right time for commodities? Three charts say yes.

By: Columbia Threadneedle Investments, US
Harvest Exchange
June 18, 2018

Is it the right time for commodities? Three charts say yes.

Right now is a particularly strategic time to include commodities in your asset allocation mix.

Joshua Kutin, Head of Asset Allocation, North America

Investors generally consider commodities for enhanced portfolio diversification and a hedge against inflation. But while the past several years have been a mixed bag in terms of performance and volatility, we’re bullish on commodities today. Here’s why:

As we look at different environments for economic growth and inflation, we find ourselves in an above-trend period on both. And while U.S. stocks have historically performed well (compared with cash) in similar economic growth environments, this—combined with inflation—is the best possible environment for commodity investing.

One of the main arguments for including commodities in an asset allocation portfolio is diversification. But at various points both before and after the financial crisis, diversification benefits decreased because equities and commodities were moving in a very similar direction. Over the last five years, we’ve seen a noticeable decline in correlation between stocks and commodities, which means we can expect an improvement in their diversification benefits.

Despite these advantages, one of the more recent challenges in commodities investing has been the elevated volatility. It spiked up toward the end of 2014 but has recently reverted to a more stable level.

Bottom line

There’s always a role for commodities in a diversified asset allocation portfolio. The current favorable macroeconomic environment, along with an improvement in some of the factors that had made commodities a less effective diversifier, makes it a particularly good time for investors to think about their exposure to this asset class.

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Commodity investments may be affected by the overall market and industry and commodity-specific factors, and may be more volatile and less liquid than other investments.

Diversification does not assure a profit to protect against lost.

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The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Management Investment Advisers, LLC (CMIA) associates or affiliates. Actual investments or investment decisions made by CMIA and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Since economic and market conditions change frequently, there can be no assurance that the trends described here will continue or that any forecasts are accurate.

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Originally Published at: Is it the right time for commodities? Three charts say yes.