By: Drizzt
Readers here would have noticed that I do have much info here dedicated to commodities, gold or energy in my weblog. This is because going forward, these alternatives have a huge potential to provide that alpha growth for your portfolio.
Alternatives as an asset class
Critics of commodities would point to the 20 barren years where they go nowhere and give negative returns annually. However, it has become an asset class that cannot be ignored going forward.
Like REITs, it provides a low correlation to normal equities and bond price movement. In fact, the correlation of commodities and gold tend to be negative compared to equities. This means that when the price of equities are going up commodites are likely to head in the opposite direction.
But don’t take it that it is always the case. Chances are the easiest way that you get expose to commodities and gold are through unit trusts that invest in companies that deals with commodities and gold mining companies. since they are equities, at times they are subjected to the same systematic risks that affect the general equity market.
A good way to illustrate how a different correlation impacts your basic equities/bond allocation is illustrated below, which i taken of hardAssetInvestor:
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