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Matthias Knab, Opalesque: Mark Rzepczynski, Founding Partner, Chief Investment Officer AMPHI Research and Trading, writes on Harvest Exchange:
An article in the Wall Street Journal , "Why Commodity-Index Investing May be Futile" has gotten a lot of interest by investors although there was not any new information in the story. The reasons for avoiding commodity indices should be taken seriously; nevertheless, the broader issue of differences between commodity and equity investing is actually straight-forward. Commodity investing in an index of futures is not the same as a buy and hold strategy for an equity index, yet the factors that make it different are also the reasons for the lower correlation of commodities with traditional investments.
Outlined below are the five reasons for why the WSJ thinks commodity index investing is futile and some elaboration on these differences. Simply put, different users and different markets will lead to different return outcomes. [view chart on Harvest]
Is commodity index investing futile? No, but, a buy and hold strategy during a period of market contango and low economic growth is a loser's game. The idea that investors should just hold a long-term investment in a commodity index to get a range of commodity exposure has come and gone.
There are a few key issues that have...................... To view our full article Click here
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