Trends Watch: Commodities Investing

It’s no secret that commodities provide investors portfolio diversification due to their ability to act as a hedge against inflation, along with their low correlation to traditional assets such as stocks and bonds, especially in an environment of post-pandemic inflation, when investors need to protect their portfolios against downside risk. 

EisnerAmper spoke with Don Casturo, CIO, Quantix Commodities, on commodities investing amid this post-pandemic inflationary environment, discussing the opportunities in the space, along with the challenges it presents. 

Key Takeaways 

• Commodities can offer portfolio diversification and act as a hedge against inflation, especially in our current economic climate. 
• The shift towards deglobalization is expected to create sustained bullish opportunities for commodity investments. 
• While challenges like high barriers to entry and benchmark design flaws exist, smarter product development can unlock significant benefits in this asset class. 

The Role of Commodities in Today’s Economy  

Casturo highlighted that during the period following the COVID-19 pandemic, commodities have presented an attractive investment opportunity, providing investors with diversification to protect their portfolios against downside risk, and this trend is expected to continue.   

As we move into an era of deglobalization, which will inherently cause inefficiencies, including duplication of supply chains and a lack of free capital flow to stimulate supply growth, these factors will provide bullish tailwinds for commodities. The only way for investors to protect themselves against that inflationary effect is to own commodities.  

Challenges in Commodity Investing  

On the other hand, Casturo noted a couple of challenges, including the high barriers to entry and investor disillusionment. He pointed out that institutional investors, whether through retail platforms or large capital pools managed by investment committees, face substantial hurdles related to track record and assets under management (AUM).  

This can, unfortunately, prevent many high-quality emerging managers, despite their expertise and product quality, from achieving scale. 

Redefining Commodity Benchmarks for Investor Success  

One of the biggest reasons he noted for disillusionment is that the benchmark for commodities, the Bloomberg Commodity Index, has some flaws in its design. Over the past 25 years, the actual spot price of commodities within this basket has surged over 400%, yet the index itself has only risen by 40%. This disparity has understandably led to investor frustration.  

He emphasized that these design flaws can be overcome through smarter product development, thereby opening up the asset class in intelligent ways. This approach can enable investors to fully capitalize on the significant benefits that a commodity allocation, especially in the current economic climate, can provide.  

Listen to the Full Episode  

Listen to the full EisnerAmper Alternative Investments Podcast on YouTube.