How to harvest returns from commodities

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Commodities play an essential role in our everyday lives. Whether we eat a slice of toast for breakfast, take the bus to work, or drink a coffee with colleagues, we are users of commodities. The commodities value chain employs millions of people. Switzerland, a country without significant natural resources, acts as a global trading hub for physical commodities, which contributed 4.8 % of GDP1.

Contrary to some investors, we believe that demand for commodities will remain strong. Even if Chinese and industrialized economies slow down, emerging markets will continue investing to reduce their infrastructure deficit, while their growing population will continue to live in expanding cities. This will drive growth in commodities consumption.

This paper makes the case for incorporating commodities investments into a broader multi asset portfolio by answering the three questions that clients ask us every week:

  1. Why commodities? Because commodities as an asset class can deliver a unique combination of diversification, inflation hedging, and income.
  2. Is there value? Yes, commodities are one of the few undervalued areas of the market today, making them extremely attractive compared with equities and bonds.
  3. How should I invest? By adopting an active approach, investors have the opportunity to extract returns without taking excessive risks, and outperform passive, index-following strategies.

We also address the misconception that investing in commodities has a speculative character.

1. Source: Swiss state secretariat for economic affairs, 2019