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DoubleLine: Time To Revisit Commodities [Slides]

DoubleLine Strategic Commodity Fund webcast titled, “Time To Revisit Commodities.”

DoubleLine Strategic Commodity Fund – Rationale for Investing In Commodities

  • Diversification benefits relative to traditional asset classes
    • Potential low–to-uncorrelated return source to traditional asset classes
  • Potential to hedge against unexpected inflation
    • Physical assets have historically tended to move in line with broad inflation measures
  • Potential incremental returns from each individual commodity’s market structure
  • Commodity supply and demand is generally correlated to the cyclicality of the global economy

Diversification Benefits of Commodities

  • Broad commodities have shown low correlations to other broad asset classes
  • The average correlation is 0.20

DoubleLine Commodities

Commodities as a Possible Inflation Hedge

  • Commodities can also be a hedge against unexpected inflation
    • We define unexpected inflation as year over year change in year over year inflation
    • Example: YoY CPI was 6.1% on December 31, 1990 and YoY CPI was 3.1% on December 31, 1991 making unexpected inflation -3.0% for that year
  • Commodity performance over the long term has tended to rise and fall with unexpected inflation

DoubleLine Commodities

When is it a Good Entry Point to Buy Commodities?

  • UBS Bloomberg Constant Maturity Commodity (CMCI) Index adjusted for inflation
    • Relative low during financial crisis of 582.4 on February 28, 2009
    • Level as of March 31, 2016 was 482.3

DoubleLine Commodities

Timing Commodity Investments

  • DoubleLine Commodity Timing Signal

DoubleLine Commodities

DoubleLine Strategic Commodity Fund Structure

  • DoubleLine Strategic Commodity Fund is a long-biased commodity fund that tactically allocates to a long-short dollar neutral commodities strategy when a 100% long commodity allocation is unattractive

DoubleLine Commodities

What is Commodity Beta?

  • Traditional asset classes define “beta” using market capitalization, or a similar pricebased metric, as the basis for determining the weighting scheme
  • However, since commodity investments are typically obtained via commodity futures there is a challenge with defining commodity “beta” in a similar vein
    • For each futures contract outstanding there is one entity which is long the exposure and one offsetting entity that is short the exposure
    • Therefore the market capitalization of each futures market is zero
  • Index providers have turned to other factors to determine how to allocate capital across various commodities
    • These include, but are not limited to open interest, volume, production and fixed weights
  • Since there is no agreeable definition of how to define the market weights of various commodities, all commodity indices are actually rules-based commodity strategies

Performance of Various Commodity Betas

DoubleLine Commodities

See full slides below.