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.
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
Credit Suisse AG is one of the world’s leading financial services providers and is part of the Credit Suisse group of companies (referred to here as ‘Credit Suisse’). As an integrated bank, Credit Suisse offers clients its combined expertise in the areas of private banking, investment banking and asset management. Credit Suisse provides advisory services, comprehensive solutions and innovative products to companies, institutional clients and high-net-worth private clients globally, as well as to retail clients in Switzerland. Credit Suisse is headquartered in Zurich and operates in over 50 countries worldwide. The group employs approximately 50,500 people. The registered shares (CSGN) of Credit Suisse’s parent company, Credit Suisse Group AG, are listed in Switzerland and, in the form of American Depositary Shares (CS), in New York. Further information about Credit Suisse can be found at www.credit-suisse.com.
In its Asset Management business, Credit Suisse offers products across a broad spectrum of investment classes, including hedge funds, credit, index, real estate, commodities and private equity products, as well as multi-asset class solutions, which include equities and fixed income products. Credit Suisse’s Asset Management business manages portfolios, mutual funds and other investment vehicles for a broad spectrum of clients ranging from governments, institutions and corporations to private individuals. With offices focused on asset management in 19 countries, Credit Suisse’s Asset Management business is operated as a globally integrated network to deliver the bank’s best investment ideas and capabilities to clients around the world.
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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.
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