Commodities: Hedge Against Inflation

Commodities: Hedge Against Inflation-Image via Wikipedia

Credit Suisse’s Total Commodity Return Strategy team today announced the release of a new white paper entitled, “How Commodities Can Help Investors Face the Uncertainty of the Inflation/Deflation Debate.”

In the wake of the 2007–2009 global financial crisis there have been heated debates over which is the greater macroeconomic risk facing the world’s developed economy: inflation or deflation. The lack of consensus on the outlook for inflation presents a challenge to investors on how to prepare for unexpected shifts in the global inflationary environment.

The new white paper explains how incorporating commodities into an overall portfolio allocation can act as a hedge against inflation, and more importantly, against unexpected inflation.  Some of the key findings included in the report are:

  • Uncertainty increases the risk that any rise in inflation will be “unexpected” (i.e., it will not be properly priced into market valuations); exposure to real assets such as commodities could help investors address this challenge;
  • Commodities are most effective at hedging unexpected inflation as expected changes to inflation are generally already factored into security prices;
  • Unlike other investments, such as TIPS, commodities may also provide important diversification benefits which may help improve an investor’s overall risk/return profile. Diversification is typically best achieved using a broad basket of commodities to smooth out the volatility of individual commodities, such as oil or gold;
  • Regardless of the results of the inflation/deflation debate, the outcome will undoubtedly be “unexpected” which supports the argument that commodities can help hedge a diversified portfolio against changing inflation conditions.

For a copy of the new white paper, please click here or email ir.betastrategies@credit-suisse.com.

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse’s Total Commodity Return Strategy has been managed for fourteen years and seeks to outperform the return of a commodities index, such as the Dow Jones–UBS Commodity Index Total Return or the S&P GSCI Total Return Index, using a quantitative commodity research process. Commodity index total returns are achieved through:

  • Spot Return: price return on specified commodity futures contracts;
  • Roll Yield: impact due to migration of futures positions from near to far contracts; and
  • Collateral Yield: return earned on collateral for the futures.

As of November 30, 2010 the team managed approximately USD 7.1 billion in assets globally.

Credit Suisse AG

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Important Legal Information

This document was produced by and the opinions expressed are those of Credit Suisse as of the date of writing and are subject to change without obligation to update. It has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of Credit Suisse to any person to buy or sell any security. Any reference to past performance is not a guide to future performance. The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable but Credit Suisse does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof.

Certain information contained in this document constitutes “Forward-Looking Statements” (including observations about markets and industry and regulatory trends as of the original date of this document), which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe”, or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties beyond our control, actual events, results or performance may differ materially from those reflected or contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on such statements. Credit Suisse has no obligation to update any of the forward-looking statements in this document.

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