White Paper

Building a Better Commodities Portfolio

Topics - Alternative Investing Commodities Portfolio Construction Portfolio Risk and Performance

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Building a Better Commodities Portfolio

Commodities as an asset class gained in popularity during the 2000s, but experienced dismal performance in the 2010s as inflation stayed low and many commodity prices fell. Now, in the early 2020s, interest is rising again. Commodities have tended to be particularly strong diversifiers during periods of rising or volatile inflation.

During its first wave in the 2000s, commodities investing was dominated by passive portfolios tracking indices such as the S&P GSC Index and the BCOM Index. But recently investors have become more aware of the shortcomings of this approach – unfavorable contract roll costs, a lack of sector diversification, and missed active opportunities.

What does a “best-in-class” commodity portfolio look like? In this paper we first review the benefits of commodities as an asset class, and then explore the potential of three enhancements to a passive approach: better risk balance across sectors, dynamic risk management through time, and active tilts based on intuitive strategies that have been well-compensated historically.


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The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.


Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. The hypothetical performance shown was derived from the retroactive application of a model developed with the benefit of hindsight.  Hypothetical performance results are presented for illustrative purposes only.


Diversification does not eliminate the risk of experiencing investment loss.


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This material is intended for informational purposes only and should not be construed as legal or tax advice, nor is it intended to replace the advice of a qualified attorney or tax advisor.


AQR Capital Management is a global investment management firm, which may or may not apply similar investment techniques or methods of analysis as described herein. The views expressed here are those of the authors and not necessarily those of AQR.