A question popped up by one of my friends with regards to the commodities asset class in The Bedokian Portfolio. He asked instead of getting gold, silver and oil, could he replace them with gold and silver mining, and oil companies? After all, they are in the commodity business.
To give my answer, it will be a “no”.
Why No
The main aim of the commodity asset class is to have a form of insurance against the volatility of the markets, in accordance to reducing portfolio risk through diversification of asset classes1. That being said, it is better to own “as direct as possible” the commodities, be it physical or through ETFs that track their prices.
On the other hand, when you buy into a gold/silver mining or oil company, the price of the commodity itself is just one part; you are also buying into the company’s assets, ...
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