Commodities: The Full Story

October 06, 2021 | Tanner Maupin, Research Associate

The first three quarters of 2021 have seen positive performance from a variety of asset classes ranging from U.S. and international equities to bank loans, which have exhibited returns close to their 10-year averages. However, one segment of the market that has experienced strong, aberrational performance on a year-to-date basis is commodities. Through the end of September, the S&P GSCI, a broad-based index that includes futures contracts on physical commodities, has returned 38.3% since the beginning of the year, far in excess of its long-term average. Recent performance for the asset class has largely been driven by surging demand for raw materials amid economic reopenings, coupled with pandemic-fueled supply chain dislocations, which caused the prices of many commodities to skyrocket. For instance, both lumber and copper experienced all-time highs during the first half of 2021, while agricultural commodity prices reached a 7-year peak earlier in the year as a result of strong demand for meat. Oil consumption also hit a seasonally adjusted high in July of 2021, which led to a 50% increase in the price of crude futures from the year prior. As the global economy continues to reopen, labor shortages, supply chain bottlenecks, and strong demand for raw materials will likely persist, meaning that positive performance from commodities may continue into 2022.

As investors assess the prospects of the commodities space going forward, it is important to keep historical context in mind. To that point, our chart this week examines both the 10-year annualized returns and standard deviations for eleven different asset classes to better understand the long-term performance profiles of each one. As displayed in the chart, the real estate space, as measured by the NCREIF index, has posted strong returns in the last decade as well as a low standard deviation (though the illiquid nature of the asset class may lead to some volatility smoothing). Equities have tended to exhibit higher levels of return and standard deviation than fixed income, while Small Cap indices have notched both higher returns and volatility than their larger peers across the geography spectrum. Interestingly, each of the asset classes profiled in the chart has yielded positive performance in the last 10 years with the exception of one: commodities. For the 10-year period ending September 30th, 2021, the S&P GSCI posted an annualized return of -4.8%. Additionally, the index has experienced an annualized standard deviation of 21.4% during that same period, which is again the most extreme of any of the asset classes in the chart above. Put simply, commodities have exhibited both the lowest returns and highest levels of risk of any major asset class in the last 10 years. As investors assess recent strong performance from the space and look to the future, it is crucial to avoid recency bias and keep history in mind. Prudence dictates a diversified approach to asset allocation in order to hedge uncertainty and achieve optimal risk-adjusted returns.

Print PDF > Commodities: The Full Story

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Tanner Maupin
Research Associate

Get to Know Tanner

Related Content

10.14.2021

The Impact of the Delta Variant on the U.S. Economic Reopening

Thanks to a rollout of effective vaccines at the beginning of 2021, daily new cases of COVID-19 in the United…

10.07.2021

What Are the Ramifications of a Debt Ceiling Breach?

With an agreement finally showing promise to resolve the U.S. government’s potential and impending debt ceiling breach, investors are assessing…

10.04.2021

China: Evergrande and Another Move Down

In August we released our newsletter China: From Leader to Laggard, in which we reviewed how…

Graphic of darkened photo of city buildings, with guidance pattern overlay and "Q3 2021 Market Insights" in white.

10.01.2021

Q3 2021 Market Insights Video

— COMING OCTOBER 21st — This video will feature an in-depth analysis of the third quarter’s performance…

10.01.2021

Build Back Better Act: Proposed Tax Changes by the House Ways & Means Committee Legislative Update

The House Ways and Means Committee released 881 pages of a proposed bill that would make changes to the tax…

Column chart showing Realized Rates for the 10-Year Treasury Yield following the Taper Tantrum of 2013 and the current Forward Rates as of September 28, 2021. Chart subtitle: While the market is expecting yields to rise with Fed tapering, current Treasury forward rates indicate that near-term movements in the 10-year Treasury may be less pronounced than those exhibited during the 2013 Taper Tantrum. Description: Y-axis shows 10-Year Treasury Yield by percentage, from 1.0% to 3.0%. X-axes shows five categories: Spot Rate, 1 Month Later, 3 Months Later, 6 Months Later, and 9 Months Later. April 13 (Realized Rates) columns are at left in each category displayed in purple, and September 2021 (Forward Rates) are at right in teal. Spot Rate 1.70% in 2013, 1.50% in 2021. 1 Month: 2.13%, 1.52%. 3 Month: 2.61%, 1.56%. 6 Month: 2.53%, 1.62%. 9 Month 2.69%, 1.68%. Chart sources: Bloomberg and Federal Reserve Bank of St. Louis, as of September 28, 2021.

09.30.2021

What Does Fed Tapering Mean for U.S. Yields?

Last week, Federal Reserve Chair Jerome Powell indicated the potential tapering of bond purchases at some point in the future…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >