Commodities and commodity futures may deserve a place in a diversified portfolio. An index of commodity futures between 1959 and 2004 provided a return equal to the S&P 500 stock index, with lower volatility.
Moreover, the returns to futures buyers were negatively correlated with stock and bond returns during that 45-year period. Often, futures went up when stocks or bonds dropped, and vice versa. This means that a portfolio including futures exhibited less volatility than a portfolio containing only stocks and bonds.
If you’re interested in this concept but not willing to trade commodities, consider a small allocation to one or more of these mutual funds:
- PIMCO Commodity Real Return Strategy;
- Oppenheimer Real Asset; and
- Merrill Lynch Real Investment.
