July 24 (Reuters) – Buying commodities in order to diversify
your portfolio might not be that bright an idea after all.
A new study from the Bank for International Settlements
disputes the idea that adding commodities to a portfolio can
lower the volatility of returns. Considering that this has been
the bedrock idea underlying the buying and selling of
commodities as an asset class over the past 15 years or so, this
is big news. ( www.bis.org/publ/work420.pdf )
Taken in combination with trends negative for commodities
markets like the migration of manufacturing back to developed
markets and 3-D printing, there may be fewer reasons for
investors to consider the asset class.
The study, by Marco Lombardi of the BIS and Francesco
Ravazzolo of Norges Bank, looked at correlations between returns
in commodities and equities markets and found that, having been
about zero for a decade, they have increased markedly from 2008
Rather than moving in different directions, commodities
markets have been moving along with equities, creating more
volatility for portfolios.