The Strategic and Tactical Value of Commodity Futures

Posted: 23 May 2006

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)


Investors face numerous challenges when seeking to estimate the prospective performance of a longonly investment in commodity futures. For instance, historically, the average annualized excess return of the average individual commodity futures has been approximately zero and commodity futures returns have been largely uncorrelated with one another. The prospective annualized excess return of a rebalanced portfolio of commodity futures, however, can be equity-like. Some security characteristics (such as the term structure of futures prices) and some portfolio strategies have historically been rewarded with above-average returns. It is important to avoid naive extrapolation of historical returns and to strike a balance between dependable sources of return and possible sources of return.

This paper is a shortened version of an earlier working paper. The unabridged version of this paper can be found at

Keywords: Derivative Instruments, Commodity Derivatives, Alternative Investments, Commodities, Portfolio Management, Asset Allocation

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

Suggested Citation

Erb, Claude B. and Harvey, Campbell R., The Strategic and Tactical Value of Commodity Futures. Financial Analysts Journal, Vol. 62, No. 2, pp. 69-97, April 2006, Available at SSRN:

Claude B. Erb (Contact Author)

TR ( email )

CA 90272
United States

Campbell R. Harvey

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)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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