Should your investment portfolio have exposure to
The problem with commodities (NYSEARCA:DBC) is that most of us
don't have storage space in the garage for a herd of cattle or
pork bellies. And even if we did, it still wouldn't give us
diversified exposure to other important commodity sectors like
agriculture, energy, and metals (NYSEARCA:GLTR).
It's true commodities have significantly lagged the performance
of U.S. stocks (NYSEARCA:SCHB) over the past several years. But
that doesn't diminish their importance.
In the context of a diversified portfolio with market exposure
to domestic and developed market stocks (NYSEARCA:EFA), bonds
(NYSEARCA:AGG), global treasury inflation protected securities
(NYSEARCA:GTIP), and global real estate (NYSEARCA:RWO) -
commodities have a definite place. Beyond offering low correlation
to other types of assets, commodities can serve as an inflationary
The chart above shows something we haven't seen from commodities
in quite a while; outperformance. You'll note how the iShares
S&P GSCI Commodity Index Fund (NYSEARCA:GSG) has
beaten the total U.S. stock market over the past three
months by almost 7%. Beef prices are at 30-year highs and
(NYSEARCA:JO) have soared because of droughts in South America.
GSG maintains exposure to 24 different commodities via futures
contracts. One of GSG's drawbacks is its heavy exposure to
energy commodities like crude oil and gas, which account for around
68% of the fund's commodities exposure. In my video titled "
2 Easy Ways to
Get Exposure to Commodities
" I examine two other commodity focused ETFs that offer investors a
good opportunity to own commodities but in a more diversified
When searching for core portfolio exposure to commodities,
there's no doubt that ETFs and similar product structures offer
convenient and affordable access. But it's important to
understand that certain commodity ETFs are much less diversified
than they appear. And if that's not what you want in an ETF when
trying to obtain broad exposure to commodities.
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