Why Investors Should Hold a Diversified Portfolio of Commodities

Bridgewater

Atul Lele, Karen Karniol-Tambour

Article

1 Pages

The authors argue that commodities can diversify portfolios against different forms of inflation, but broad exposure matters because individual markets respond to different economic forces. They highlight how oil concentration can distort common indexes, while China consumes over half of industrial commodities on average.

Key Takeaways

Diversification Improved Returns: Since January 1970, the top seven equal weight commodity mix returned 4.8% annually with 18.6% risk, versus GSCI’s 1.4% return and 20.1% risk.
China Drives Demand: China accounts for more than 50% of industrial commodity consumption on average, making its policy choices particularly relevant for metals and bulk commodities.
Gold’s Inflation History: Across reflationary periods over the past 100 years, cumulative gold appreciation ranged from 102% to 1,132% against major paper currency measures.
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