Managed Futures
AlphaBee Commentary: One Cannot (really) Invest In Commodities. You Should Still Do It, And Especially Now
July 2024 - Managed Futures
What makes commodities unique and why should you include them into your portfolio?
Commodities possess unique characteristics that distinguish them from other asset classes. Perhaps the most crucial difference lies in their finite nature. Unlike financial assets, which can be readily created, raw materials are resources which inherent physical limitations. Extraction cannot be ramped up on a whim, and even their long-term reliable supply can sometimes not be easily increased - and certainly not compared to the methods investors might have become accustomed to or become reliant upon. Consider, for instance, the monetary policy tools used by developed market central banks to increase money supply after the Great Financial Crisis (GFC). Their “Quantitative Easing” involved creating new money to purchase certain government bonds. These purchases inflated bond prices and at the same time led to a manipulated, i.e., lowered, term structure of interest rates. Since all financial assets are priced relative to such government bond “risk-free rates”, the central bank interventions have favorably influenced asset valuations in those markets as well. This has particularly benefited asset prices whose valuations rely on projected cash flows extending far into the future.
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