How bad have broad commodity returns been? Bad enough.
Here's a snapshot over the last 12 months ending April 30. I've
chosen to look at the three largest and most well-established broad
commodity ETFs. That means the ones with the most assets that have
at least five years of history.
These are the PowerShares DB Commodity Tracking Fund
(NYSEArca:DBC), the iPath Dow Jones-UBS Commodity Total Return ETN
(NUYSEArca:DJP) and iShares S&P GSCI Commodity-Indexed Trust
Then I made a simple risk/return plot of the portfolios, with
returns (for the holding period) on the vertical axis and risk
(annualized daily standard deviation) on the horizontal axis. This
means portfolios in the upper left look good, while lower right is
not the place to be.
The verdict? Over the past 12 months, the commodity allocation
would have hurt regardless of the fund chosen.
So what's going on here? Shouldn't a dollop of commodity
exposure help an otherwise-vanilla portfolio?
Well, not when the commodity funds brought a small but unhelpful
trifecta of negative returns, relatively high volatility and
relatively high correlations to equity-about 0.56 to SPY-as they
did over the 12-month period.
Over the three-year period, commodities had strong double-digit
returns. But equities were even stronger. And during this period,
bonds-the third leg of these simple portfolios-produced steady
returns with low volatility and a wonderfully negative correlation
So the allocation to commodities in this period hurts, mostly by
taking away from these two strong and complementary components.
When we look back for a full five years, the picture changes a
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