Results for search of category: Commodities

Adding REITs and TIPS to the mix

Successful diversification using publicly-traded alternative asset classes, like commodities, REITs and TIPS is possible. We can select from a family of systematically-managed portfolios, which allow us to capture the upside of diversification and avoid most of the downside. However, the big takeaway from this process is that multi-asset diversification itself has been largely redundant since the end of the financial crisis, thanks to the actions of the Federal Reserve. Since that time there have been two false dawns, when it looked as though the concept was about to make a comeback and we may be on the verge of another one now. If it turns out to a real dawn, we have the regime management skills to exploit it. If not, we should be able to get out without too much harm.  [Read More... ]

Is it Time for Commodities?

We know how to incorporate commodities into our asset allocation process. Over the last 25 years as a whole, our process would have generated significant outperformance on an absolute and risk-adjusted basis. This is achieved by systematically managing exposure to a limited number of commodities: oil, gold and copper only, and by actively managing a small number of other assets, spread across equities and fixed income. Passive exposures don’t work as well and too many assets create unnecessary and counter-productive complexity. The problem with including commodities is that US exceptionalism in equities, currencies and fixed income has made this strategy unattractive since 2010. If you think that this regime may be ending, it may be time to take another look at commodities.  [Read More... ]

Opportunity in Alternatives

Over the last 25 years, US REITs have provided successful risk-adjusted diversification opportunities when compared with a 50/50 equity bond portfolio. Comparing them with just an equity or fixed income benchmark understates how well they do when compared with a joint benchmark. They perform far better than the other alternatives we look at – hedge funds, commodities and gold. We think the investors underuse the tactical asset allocation opportunity provided by REITs, as opposed to real estate in physical form.  [Read More... ]

Time to Worry About Oil

Energy ETFs may be worth the risk. Crude oil may be breaking out of its trading since 2015, even if we allow for the weakness of the dollar. It’s time to ask how high it can go, and what this would do your portfolio. Beyond an overweight in the global energy sector and exposure to the right part of the US high yield market, it’s time to think about direct investment in the commodity itself.  [Read More... ]

The Anti-Forecast

Investors don’t need to read the outlooks for 2018 to know that they are not being adequately rewarded for holding supposedly safe assets like US Treasuries. They are effectively forced into US and international equities, because the returns generated by traditional fixed income or alternative assets are unattractive in risk-adjusted terms.  [Read More... ]

Prices Move Before News

Newspapers like to argue that events are unforecastable, which is why you need to pay for access to news. We agree that forecasts don’t really work, but we don’t think news does either. We think that prices move before news. Very often the change in price is the news.  [Read More... ]


Lots of clients are asking about gold, which is a sure sign they are nervous. Our models suggest that gold works best as a diversifier whenever the returns of US equities and Treasuries become positively correlated. This happens rarely, but is a plausible scenario if the Fed starts raising rates from June onwards.  [Read More... ]

Difficult Question. Don’t Answer

The tactical view on equities vs bonds quickly resolves into a question about what central banks, particularly the ECB, are going to do. This is hard enough to analyse, but predicting investor reaction is even harder. We prefer to dodge the question by looking at the merits of gold and US real estate, both of which offer better risk-adjusted returns than for some time.  [Read More... ]

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