The Tactical and Strategic Value of Commodity Futures

61 Pages Posted: 3 Feb 2005

See all articles by Claude B. Erb

Claude B. Erb


Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 12, 2006


Investors face a number of challenges when seeking to estimate the prospective performance of a long-only investment in commodity futures. For instance, historically, the average annualized excess return of individual commodity futures has been approximately zero and commodity futures returns have been largely uncorrelated with one another. However, the prospective annualized excess return of a rebalanced portfolio of commodity futures can be equity-like. Certain security characteristics, such as the term structure of futures prices, and some portfolio strategies have historically been rewarded with above average returns. Avoiding naïve extrapolation of historical returns and striking a balance between dependable sources of return and possible sources of return is important. This is the unabridged version of our 2006 publication in the Financial Analysts Journal.

Keywords: Strategic asset allocation, Tactical asset allocation, Diversification return, Roll return, Momentum, Market timing, Convenience yield, Contango, Backwardation, Normal backwardation, Commodity correlation, Commodity risk factors, Commodity term structure, Trading strategies, Overlay strategies

JEL Classification: G12, G13, E44, Q11, Q41, Q14

Suggested Citation

Erb, Claude B. and Harvey, Campbell R., The Tactical and Strategic Value of Commodity Futures (January 12, 2006). Available at SSRN: or

Claude B. Erb

TR ( email )

CA 90272
United States

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)


National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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