Quantcast
Other Stories

“Based on our models, we forecast MLCX total returns of 6% over the next 3 months and 9% over the next 12 months. Given the recent decline in commodity volatility and correlations, we believe these returns look ..

02 Apr 2013

NEW YORK (Commodity Online): After poor performance in the last few months, some investors have cut back their exposure to commodities and boosted positions in equities. While there are cyclical reasons to support this asset allocation decision, BofAML's most recent work suggests commodity and equity returns are comparable in the very long run.

The S&P GSCI TR index only has history going back to 1970, while DJ UBS and MLCX TR indices merely date back to 1990. The Bank built a commodity index going back to 1930 and calculated average returns of 8% with a standard deviation of 11% in the 1930-2013 period, compared to 11% returns and 16% deviation for equities (S&P 500 TR).

“Our work also shows inflation hedging and diversification benefits of commodities have held up going back as far as the 1930s. For instance, our analysis suggests that real commodity prices rallied more in inflationary periods than inflow inflation periods, making them a solid inflation hedge.” BofAML said.

“Also, while our calculations indicate commodities underperformed stocks in the 1930-1970 period, we find that adding even a small amount of commodities to a stock portfolio would have yielded a higher information ratio in each sub period we consider. In our view, this result underscores the long-standing diversification benefits of commodities.”

The Bank also presented a model to estimate commodity index total returns and provide forecasts for a range of indices, including various sectors.

The estimates are mainly built around our fundamental price forecasts for a range of commodities, as well as a new model to project forward roll returns.

“Based on our models, we forecast MLCX total returns of 6% over the next 3 months and 9% over the next 12 months. Given the recent decline in commodity volatility and correlations, we believe these returns look attractive on a risk-adjusted basis.” the Bank concluded.


YOUR RESPONSE
Click on the image to reload it
Click to reload image
COMMENTS (0)

@2013 COMMODITYONLINE ALL RIGHTS RESERVED