The Strategic and Tactical Value of Commodity Futures

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Financial Analysts Journal
March 2006 | Vol. 62 | No. 2 | 28 pages
Source: CFA Institute
Claude B. Erb, CFA Campbell R. Harvey

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Abstract

Investors face numerous challenges when seeking to estimate the prospective performance of a longonly investment in commodity futures. For instance, historically, the average annualized excess return of the average individual commodity futures has been approximately zero and commodity futures returns have been largely uncorrelated with one another. The prospective annualized excess return of a rebalanced portfolio of commodity futures, however, can be "equity-like." Some security characteristics (such as the term structure of futures prices) and some portfolio strategies have historically been rewarded with above-average returns. It is important to avoid naive extrapolation of historical returns and to strike a balance between dependable sources of return and possible sources of return.

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Topics
Alternative Investments
    :
  • Commodities
|
Derivatives
|
Portfolio Management
    :
  • Asset Allocation
Credits · About the CE Program
1 CE (including 0 SER) Manage CE Credits

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