Introduction There is an increasing demand for a smart long-only product centered on the commodity space. When most investors think of commodities they are probably only aware of a handful of the commodity futures such a gold and crude oil. The universe of commodities is much more interesting and exciting when taking in a more holistic point of view by increasing the universe of investable assets to a much broader collection of commodities.
We show some examples of how to create a better long only commodity product and add some shameless plugs at the end.
Introduction In a previous post we have tried to debunk long only commodity investing. The main arguments why it does not work over long time frames is because of the curve structure associated with commodities that have to be stored in warehouses or silos. Below we show the annualised return of long only positions consisting entirely of the commodity shown as a function of percentage of time spent in backwardation.
A question we get asked often is if we have a long-only commodities product or if we can give investors access to long only commodities exposure. In this talk, we show why this is, in general, not a good idea. We do this by studying the Bloomberg …
1 Introduction 2 Bloomberg Commodities Index 3 Reconstructing Bloomberg Commodities Index 3.1 Simplifying the weights 3.2 Curve Shape 3.3 The effect of roll yield 3.4 Index Proxy 3.5 Index Proxy Performance Attribution 3.6 Curve Shape and Annualised Return 3.7 Long Backwardated Commodities 3.8 Short Contango Commodities 3.9 Combination Portfolio 4 Trend System 4.1 BCOM commodities 4.2 Larger universe of commodities 5 Conclusions 1 Introduction We get asked often is if we have a long-only commodities product or if we can give investors access to long-only commodities exposure.