Commodities as an Asset Class in Portfolio Management

Diplomarbeit, 2008
194 Seiten, Note: 1,3

Leseprobe

Introduction
- Problem Definition and Ambition
- Research Methodology
Portfolio Management
- Basics of Portfolio Management
  - Risk
  - Return
- Modern Portfolio Theory
  - Idea and Assumptions of Markowitz's Portfolio Selection Model
  - Statistical Basics
  - Efficient Frontier
- Capital Market Theory
  - Capital Asset Pricing Model
  - Capital Market Line and Market Portfolio
  - Security Market Line
- Criticism
Commodities
- Commodities Definition
- Commodity Classes
  - Energy
  - Precious Metals
  - Industrial Metals
  - Agriculture
- Economics of Commodity Markets
  - Commodity Futures Exchanges
  - Driving Forces behind the Current Commodity Bull Market
  - Market Participants
- Exposure to Commodities
  - Futures
  - Index Investments
  - Stocks
  - Funds
  - Physical Commodities
- Criticism
Investing in Commodity Futures Indices
- Mechanics of an Investment in Commodity Futures
  - Relationship between Futures Prices and Spot Prices
  - Backwardation and Contango
- Sources of Index Return
  - Spot Return
  - Roll Yield
  - Collateral Yield
  - Diversification and Rebalancing Return
- Commodity Futures Excess Returns
  - Insurance Perspective in the Theory of Normal Backwardation
  - Hedging Pressure Hypothesis
  - Theory of Storage and Convenience Yield
  - Weather Fear Premium
- Comparison of Commodity Indices
  - Commodity Index Components
    - Reuters/Jefferies CRB Index
    - S&P GSCITM
    - Dow Jones-AIG Commodity Index
    - Deutsche Bank Liquid Commodity Index
    - Rogers International Commodities Index
  - Risk and Return Comparison
- Criticism
Commodity Futures and Traditional Asset Classes in a Portfolio
- Context
- Commodity Futures vs. Traditional Asset Classes
- Evidence Supporting Commodity Futures as an Asset Class
- Traditional Assets: Equity and Bonds
- Comparison of Commodity Futures and Traditional Assets
  - Risk and Return Comparison
  - Asset Classes and the Business Cycle
  - Correlation Between and Amongst Different Asset Classes
- Portfolio-Optimization with Commodity Futures
  - Commodity Futures as an Inflation Hedge
  - Commodity Futures and the Efficient Frontier
- Criticism
Conclusion
- Résumé and Target Achievement
- Perspectives

Objectives and Key Themes

This work aims to analyze the role of commodities as an asset class in portfolio management. It examines the economic factors influencing commodity markets and explores the potential benefits and challenges of incorporating commodity futures into investment portfolios.

The economic characteristics and investment opportunities presented by commodities.
The relationship between commodity prices and traditional asset classes like stocks and bonds.
The impact of commodities on portfolio diversification and risk management.
The potential of commodities as an inflation hedge.
The integration of commodity futures into portfolio optimization strategies.

Chapter Summaries

The first chapter introduces the research topic, defining the problem and outlining the methodology used in the study.
The second chapter provides an overview of portfolio management theory, covering concepts such as risk, return, Modern Portfolio Theory (MPT), and Capital Market Theory (CMT).
Chapter three delves into the characteristics of commodities, discussing their definition, classification, economic factors influencing their markets, and various methods of gaining exposure to commodities.
The fourth chapter focuses on investing in commodity futures indices, exploring the mechanics of such investments, sources of index returns, and various theories explaining potential excess returns.
Chapter five examines the relationship between commodity futures and traditional asset classes within a portfolio context. It compares their risk and return profiles, analyzes their correlation, and assesses the potential benefits of including commodity futures for portfolio diversification and inflation hedging.

Keywords

This work focuses on the investment aspects of commodities, particularly their inclusion in portfolio management. The core concepts encompass risk, return, diversification, inflation hedging, portfolio optimization, commodity futures indices, and the relationship between commodity prices and traditional asset classes.

Why are commodities considered an important asset class?

Commodities offer diversification benefits due to their low correlation with stocks and bonds. They often perform well during periods of inflation and specific phases of the business cycle.

What are the different ways to invest in commodities?

Investors can gain exposure through commodity futures, index investments, physical commodities, commodity-related stocks, or specialized funds.

What is the difference between Backwardation and Contango?

These terms describe the relationship between spot and futures prices. Backwardation occurs when futures prices are lower than spot prices (beneficial for long positions), while Contango is the opposite.

How do commodities act as an inflation hedge?

Commodity prices are often a driver of inflation; as the cost of raw materials rises, the value of commodity investments typically increases, preserving purchasing power.

What are the components of a commodity index return?

The total return usually consists of the spot return (price change), the roll yield (from moving between futures contracts), and the collateral yield (interest on held capital).