FROM: Lisa Sorani, Manager of HR Employee Services LS -

A Brief Description of Commodities
REAL RETURN – COMMODITIES
• Objective
• Commodities are often seen as “insurance” against financial crises and/or surprises in inflation
• Commodity returns can move in near-opposite direction of other financial assets, providing potential diversification
benefits
• Key Market Trends/Issues
• While the correlation between commodities and other financial assets have been negative, certain commodities have
moved more in tandem with financial assets during the last 12-24 months (e.g., gold correlated closely with public equity)
• During the latter part of the 2008 crisis, certain commodities provided ample protection as investors retreated to safety
• Commodities are the most volatile of all investments, with precious metals and energy-based commodities often making
significant pricing adjustments
• Most commodity investments rely heavily on supply/demand factors, rather than the projection of operating cash flows
• Institutional investors are considering several alternatives to adopting strictly passive exposure: e.g., active management,
alternative benchmarks, custom benchmarks, long/short strategies
• Commodities, while volatile, are typically highly liquid
• Investment Management Trends/Issues
• There are numerous potential methods for entering commodities: separate accounts, structured vehicles, ETFs, pooled
funds, etc.
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