Why Commodities?

Commodities exhibit a history of attractive returns with long-term performance and volatility similar to equities. In addition, commodity investments offer the portfolio construction potential benefits of low correlation to other asset classes, counter-cyclicality, diversification, and improvement in risk-adjusted returns. Commodities also provide effective inflation protection, with among the highest correlations to CPI of common inflation-hedging and real asset investments.

The Fund

pam Comments & Resources from the Fund Advisor

  • Commentaries from the Management Team
  • The Commodity Curve | Asset Class Updates
  • Jim Rogers: Don’t Rule Out a Bull Run in Commodities [8/26/15]
  • Jim Rogers: Current State of the Commodity Asset Class [3/11/15]
  • Quarterly RICI® Index Summaries
  • Webinars: Commodities & Energy

Diversification and Correlation

We believe commodities provide excellent diversification when included in a broad-based portfolio. Historically, commodities exhibit low correlation to stocks and bonds, but also to each other. The combination of diversification, low portfolio correlations, low mutual correlations, and counter-cyclicality implies that investors may receive significant portfolio impact from commodities allocations when financial assets experience poor returns.

Commodity Returns and Correlations

returns-correlations5

  1. “Facts & Fantasies About Commodity Futures”. February 28, 2005; Yale ICF Working Paper NO. 04-20, by K. Geert Rowenhorst and Gary B. Gorton.
  2. “Strategic Asset Allocation and Commodities”. March 27, 2006; Ibbotson Associates, by Thomas M. Idzorak, CFA.
  3. “Commodities as an Investment”. 2011; by Gerald R. Jensen, CFA and Jeffrey M. Mercer.
  4. Correlation of S&P Goldman Sachs Commodity Index and Barclays Capital L.T. Treasury Index is from the beginning January 1980, the inception of the Barclays Capital L.T. Treasury Index.
  5. Source: Bloomberg LP

The information presented above is for informational purposes only and does not represent that of the Fund. The Yale, Ibottson, and Jensen & Mercer research studies represent time windows used as means of demonstration in those reports at the time of their publication. The time window presented for the S&P Goldman Sachs Commodity Index correlation comparison represents the results of that index from January 1970, the inception date of the S&P Goldman Sachs Commodity Index, through the third quarter of 2014. Past performance is not a guarantee of future results. There is risk of loss in commodity investing. The Fund recently launched and has limited performance available. Please contact the advisor for performance results relative to the Fund.

Improved Portfolio Risk Adjusted Returns

January 1980 through December 2014

risk-adjusted-returns4
Source: Bloomberg Data: U.S. Stocks: S&P 500 Index; U.S. Bonds: Barclays Capital L.T. Treasury Index; Commodities: S&P GSCI TR from January 1980 to July 1998 and the Bloomberg Commodity Index from August 1998 to September 2014.

The information presented above is for informational purposes only and does not represent that of the Fund. It is not possible to invest directly in an index. The time window presented represents the common start date for all the indices shown with the inception of the Barclays Capital L.T. Treasury Index in January 1980. Past performance is not a guarantee of future results. There is risk of loss in commodity investing. The Fund recently launched and has limited performance available. Please contact the advisor for performance results relative to the Fund.

S&P 500 Total Return Index: The S&P 500 is an index consisting of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large-cap universe.

Barclays Capital LT Treasury Index: Includes public obligations of the U.S. Treasury. Securities in the index roll up to the U.S. Aggregate, U.S. Universal, and Global Aggregate Indices.

S&P GSCI: The S&P GSCI is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities.

Bloomberg Commodity Index (BCOM): The BCOM is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The Index is comprised of 22 commodities representing the energy, metals, and agricultural sectors. Prior to July 1, 2014, the Index was known as the Dow Jones-UBS Commodity Index which was first published in July 1998.

Annual Return: Measures the rate of return which, if compounded over the years covered by the performance history, would yield the cumulative gain or loss actually achieved by a fund or trading program during that period.

Standard Deviation: Shows monthly performance volatility by quantifying the amount of dispersion you can expect performances to fall around the average or mean return.

Sharpe Ratio: Uses the compounded annual return minus the available annual risk free rate in 90-day T-Bill returns divided by annualized standard deviation.

Worst Drawdown: Measures the largest cumulative percentage decline in net asset value. It is defined as the percentage decline from an investment’s highest net asset value (peak) to the lowest net asset value (trough) after the peak.


Supportive Macro Fundamentals

We believe commodities offer supportive macro fundamentals with the potential of covering wealth, demographics, infrastructure and supply.

  • Rising global population and increasing global wealth
  • Growing emerging market contribution to global economic growth
  • Significant projected increase in world infrastructure spending
  • Evidence of long-term supply/demand imbalances
  • Lack of major investment in production of certain commodities
  • Low commodity prices inhibit capital investment
  • Risk of currency depreciation
  • Unpredictable events – natural disasters, drought, weather, geopolitical
  • Worldwide fiscal stimulus and central bank monetary policies have potential to be inflationary

Inflation Protection

We feel medium to long-term inflation should be viewed as a material consideration for investors due to 1) its effect on fixed-income and equity asset class valuations and 2) its impact on liabilities and funding requirements. Commodities investment offers among the highest correlations to inflation and GDP and may help protect against currency weakness. Historically, commodities have outperformed financial assets during periods of unanticipated inflation; particularly important if, as many believe, CPI may underestimate inflation.

January 1980 through December 2014

cpi-correlations
Source: Bloomberg L.P.

The information presented above is for informational purposes only and does not represent that of the Fund. It is not possible to invest directly in an index. The time window presented represents the common start date for all the indices shown with the inception of the Rogers International Commodity Index® in August 1998. Past performance is not a guarantee of future results. There is risk of loss in commodity investing. The Fund recently launched and has limit performance available. Please contact the advisor for performance results relative to the Fund.


For More Information on Commodities visit PAM Research