DoubleLine Strategic Commodity webcast slides for the month of September 2018.
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 tended to move in line with broad inflation measures
- Potential incremental returns from each individual commodity’s market structure
- Commodity supply and demand is correlated to the cyclicality of the global economy
Potential Diversification Benefits of Commodities
- Broad commodities have shown low correlations to other broad asset classes
- The average correlation is 0.17
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Commodities as a Possible Inflation Hedge
- Commodities can also be a hedge against unexpected inflation
- We define unexpected inflation as YoY change in YoY inflation
- Example: YoY CPI was 1.6% on December 31, 1998 and YoY CPI was 2.7% on December 31, 1991 making unexpected inflation 1.10% for that year
- Commodity performance over the long term rises and falls with unexpected inflation
A Case for Commodities
- Bloomberg Commodity Index (BCOM) adjusted for inflation
- Relatively low during the recent commodity crisis at 55.91 on February 29, 2016.
- Current level as of August 31, 2018 was 58.14 making it low enough to be a potentially good entry point.
DoubleLine Strategic Commodity Fund (I Share)
vs. Individual Commodities Cumulative Performance
May 18, 2015 – September 21, 2018
Allocating to Commodities
DoubleLine Strategic Commodity Fund’s Approach
DoubleLine Strategic Commodity Fund is a long-biased commodity fund that tactically allocates to a long-short dollar-neutral commodity strategy when a 100% long commodity allocation is unattractive.
Performance of Various Commodity Betas
How the MS BFMCI Allocates Across Sectors
Limitations of Long-Only Commodity Exposures
- There are limitations to being long commodities 100% of the time.
- Due to the inherent volatility of the broad commodity market, there can be periods where index investors experience substantial drawdown.
- From January 31, 2000 to August 31, 2018, the maximum drawdown for select long-only commodity indices were:
- BCOM: -69.03%
- S&P GSCI: -82.93%
- One possible way to mitigate some of the drawdown risk in a long-only strategy is to include short commodity positions:
- However, this also limits the upside potential in a rising commodity market.
See the full PDF below.