Investment Case for Commodities? Myths and Reality

Abstract

Commodities are one of the least understood asset classes. Some investors wonder how owning a chunk of steel or a bushel of corn could provide them with any real return, particularly in times of deflation. Still others contend that the high historical returns for commodities are primarily the result of two commodity bubbles, and that, excluding those abnormal periods, commodities have had only poor results. Then, too, some see commodities as highly volatile and as too risky for most investors. This paper describes the fundamental properties of commodities to help institutional investors evaluate the case for investing in them.