Stocking Up on Commodities

April 2005
Journal of Financial Planning;Apr2005, Vol. 18 Issue 4, p19
Academic Journal
This article reports that commodity futures performs as well as the Standard & Poor's (S&P) 500 over the long term, with less volatility and with a low correlation to the S&P 500, according to a study by two academics from the Wharton School and the Yale School of Management. They studied an equal-weighted index of commodity futures from 1959-2004 and found commodities a good complement to stocks--both posting annualized returns of 11 percent. During the same period, the standard deviation for stocks was 14.9 percent, while it was only 12.1 percent for commodity futures. And more the commodities' volatility was due to outsized gains, not outsized losses. Their study stresses that to get the full diversification and return benefits, investors must invest in commodity futures, not in the stocks of companies producing commodities.


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