The Relevance Of Commodities In The Investment Strategies Of A Portfolio
In recent years, investor interest in commodities has grown substantially. After the drop in price occurring between late 2008 and early 2009, there has been upward pressure due to several factors including increased demand from China, India and other emerging markets that require oil, steel and other commodities to support their manufacturing industries and infrastructure development. The ability to obtain interesting performance is perhaps the most obvious reason for the increased interest shown by investors, but it is not the only one. Commodities may also offer other significant advantages, including improved portfolio diversification and a hedge against inflation. Diversification and protection from inflationary phenomena are two fundamental objectives when creating a portfolio. In this respect, commodities have always been appreciated for their low correlation with traditional asset classes (typically, stocks and bonds) and their structural appreciation in periods of a generalised increase in prices. Thanks to these features, commodities continue to be an essential component when creating the portfolios of both institutional and retail investors. The results of this study confirm the importance of investing in commodities when choosing an investment portfolio. The investment in commodities is therefore an excellent solution for the use of one’s capital and is thus increasingly popular among investors, especially in times of crisis and instability. Indeed, commodities have the advantage of preserving value long-term and, given that they react differently to changes in economic fundamentals, they are able to provide investors with significant earning potential and the benefits of a diversified portfolio. Consequently, incorporating commodity indices into investment portfolios can effectively reduce investment portfolio risk.
JEL classification: G11; G14; G15.
Keywords- Commodities; Gold Market; Portfolio Diversification; ETC; ETF; Derivatives