How to create a better long only commodity product

Introduction In a previous post we have tried to debunk long only commodity investing. The main arguments why it does not work over long time frames is because of the curve structure associated with commodities that have to be stored in warehouses or silos. Below we show the annualised return of long only positions consisting entirely of the commodity shown as a function of percentage of time spent in backwardation.

Debunking Long-Only Commodity Investing

1 Introduction 2 Bloomberg Commodities Index 3 Reconstructing Bloomberg Commodities Index 3.1 Simplifying the weights 3.2 Curve Shape 3.3 The effect of roll yield 3.4 Index Proxy 3.5 Index Proxy Performance Attribution 3.6 Curve Shape and Annualised Return 3.7 Long Backwardated Commodities 3.8 Short Contango Commodities 3.9 Combination Portfolio 4 Trend System 4.1 BCOM commodities 4.2 Larger universe of commodities 5 Conclusions 1 Introduction We get asked often is if we have a long-only commodities product or if we can give investors access to long-only commodities exposure.