Commodity Tidal Wave

Bloomberg reported today that global investments in commodities rose by more than a fifth in the first quarter to $400 billion. The article explains that investments tied to commodity indexes rose $40 billion in the first three months of the year to $185 billion.

A week ago, the Wall Street Journal reported that the Calpers (CA Public Employees’ Retirement System) board authorized a 3% allocation to commodities at a meeting in February. Apparently Calpers did not have any exposure to commodities, and at the time of the article, they had moved $500mm into commodities tied to the S&P GSCI Index. Calpers is a $240 billion plan. Other large pensions were mentioned in the article about getting serious about commodities.

The article notes how pension funds move into commodities for two reasons: One is that they don’t typically track prices of stocks and bonds, which helps with diversification. They other reason is that they keep in front of inflation, a priority for funds whose payouts are tied to the consumer-price index.

None of this is a surprise to us. Commodities traditionally have had low correlation to the stock market. We see first hand on a day-by-day basis how much is flowing into commodities by tracking ETFs and other commodity related equities. In fact, we are writing a special report detailing five commodity ETFs that we’ll add to our report library soon.

Note: Calpers has $500mm indexed to the S&P GSCI index, and you can duplicate that trade with symbol GSG.

Good Luck