An Empirical Analysis of The Performance of Commodity Mutual Funds?

Journal of Wealth Management, Forthcoming

Posted: 27 Nov 2015 Last revised: 17 Dec 2015

See all articles by Srinidhi Kanuri

Srinidhi Kanuri

University of Southern Mississippi

Robert W. McLeod

University of Alabama

Davinder K. Malhotra

Thomas Jefferson University

Date Written: November 26, 2015

Abstract

The use of commodities to hedge inflation risk and diversify portfolios is generally considered to be an important consideration for portfolio management. Direct investment in commodities or commodity derivatives requires that investors have significant assets and/or expertise in these commodities or their respective derivatives markets. As an alternative to direct investment, investors in recent years have increasingly resorted to the use of commodity based mutual funds. At issue is the question of whether or not these funds are delivering the benefits investors expect. In this paper we evaluate the performance, persistence, market timing and selectivity of four categories of mutual funds whose returns are based on commodity prices over the time period from each fund’s inception through December, 2012. Our results indicate that these funds have not been able to create positive alphas for their investors; have negative or insignificant performance persistence; and have no market timing ability. Some of the categories of funds, however do exhibit some selectivity. We did find that when these commodity based funds’ performance was evaluated during specific time periods of market downturns (e.g., the 2000 stock market downturn and the 2007 financial crisis), their performance was significantly positive which indicates that these funds provide a good hedge during bear markets/financial crises.

Keywords: Commodities, Mutual Funds, Alpha

JEL Classification: G12, G20, G23

Suggested Citation

Kanuri, Srinidhi and McLeod, Robert W. and Malhotra, Davinder K., An Empirical Analysis of The Performance of Commodity Mutual Funds? (November 26, 2015). Journal of Wealth Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2695842

Srinidhi Kanuri (Contact Author)

University of Southern Mississippi ( email )

Hattiesburg, MS 39406
United States

Robert W. McLeod

University of Alabama ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States
205-348-8993 (Phone)
205-348-0590 (Fax)

Davinder K. Malhotra

Thomas Jefferson University ( email )

Schoolhouse Lane and Henry Avenue
School of Business Administration
Philadelphia, PA 19144
United States

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