GLOBAL - Commodities can diversify an institutional portfolio more effectively than conventional and alternative asset classes over the intermediate and long term, Credit Suisse has claimed.
The firm said the asset class demonstrated exceptionally low correlation with financial assets in markets around the world, derived from the relationship of commodities to global markets.
The firm also advised that commodities could act as a natural inflation hedge because prices usually rise with inflation, and even contribute to its onset. The firm said this set commodities apart from traditional inflation hedges that outperform only when inflation expectations are already high and rising.
Commodities had a tendency to perform best when conventional assets performed worst, Credit Suisse noted. Financial assets tended to advance when economic conditions seemed weakest, whereas by comparison commodities usually shone when global industrial production, and the corresponding demand for raw materials, was strong.
According to Credit Suisse, the best route for rookie institutional investors would be through a broad index, due to the volatility of individual commodities.
Terry Mellish, director of UK institutional sales and relationship management for Credit Suisse’s asset management business, said: “We believe the question of whether commodities have had their day in the sun is secondary. More important, in our view, is that diversification is always in season and commodities diversify a portfolio more than any other asset class.”
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