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
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
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
Timing Commodity Investments
- DoubleLine Commodity Timing Signal
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
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
See full slides below.
