The Maverick Investors Rally Site has a post that refers to a paper by Charoula Daskalaki and George S. Skiadopoulos that investigates whether commodities add value to a portfolio of traditional investment assets. The professors found that, while there are periods in which commodities holdings provide benefits to portfolios, these benefits are not persistent or predictable.
I have discussed this in an earlier post. The Maverick Investors Rally put it better than I have: "there is no theoretical basis for commodities per se to provide any return, never mind 'enhance' a portfolio’s return." Commodities are consumed in the economic process of creating value. Any return on holding commodities is the result of price speculation, not economic wealth creation.
Are commodities an asset class? If defined by a distinct return pattern driven uniquely by economic factors, I would have to say yes. But the results of the study suggest that it is not an asset class that is worthy of consideration as a permanent part of an investment portfolio.
The Daskalaki and Skiadopoulos paper is the latest to demonstrate that an allocation to commodities does not add value to an investment portfolio. There will be more research that will suggest that the conclusion is misplaced. It will be beneficial to be skeptical.
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