Commodities have been outperforming stocks and bonds
By Yaser Anwar, 1 July 2006
And that is why I am of the opinion that the
2004 study from the Yale
School of Management’s Center for International Finance, “Facts and
Fantasies About Commodity Futures,” is a truly revolutionary document. Professors Gary Gorton, of the University of Pennsylvania’s Wharton School
and the National Bureau of Economic Research, and Professor K. Geert
Rouwenhorst, of the Yale School of Management, have finally done the
research that confirms that: • Since 1959, commodities futures have
produced better annual returns than stocks and outperformed bonds even
more. Commodities have also had less risk than stocks and bonds, as well
as better returns.
• During the 1970s, commodities futures outperformed stocks; during the
1980s the exact opposite was true - evidence of the “negative correlation”
between stocks and commodities that many of us had noticed. Bull markets
in commodities are accompanied by bear markets in stocks, and vice versa.
• The returns on commodities futures in the study were “positively
correlated” with inflation. Higher commodity prices were the leading wave
of high prices in general (i.e., inflation), and that’s why commodity
returns do better in inflationary times, while stocks and bonds perform
poorly.
• The volatility of the returns of commodities futures they examined
for a 43-year period was “slightly below” the volatility of the S&P 500
for the same period.
• While investing in commodities companies is one rational way to play
a commodity bull market, it is not necessarily the best way. The returns
of commodities futures examined in the study were “triple” the returns for
stocks in companies that produced those same commodities.
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