After the energy and food shocks, inflation and correlated losses in equity and bond markets that characterized 2022, many investors appear to be newly appreciative of the diversifying, inflation hedging properties of commodities. But they are also increasingly focused on the investment risks and opportunities associated with creating a more sustainable economy, and some question portfolio exposure to the business of extracting ever more raw materials from the earth.
But what exactly does “exposure” mean? Is it more responsible to participate in some commodity markets rather than others? Are some commodity investment strategies more responsible than others? And can investors actively influence the development of more responsible commodity markets?
In this paper, we do not try to make the case that commodity futures investing can have an unambiguously positive environmental and social impact. We do challenge the prevailing notion of its negative impact, however, and describe a holistic framework for commodities investing within a multi-asset portfolio that we believe addresses investor concerns.
Executive Summary
- Do Commodity Futures Have An Environmental Footprint?
– The “Legal Fiction”: A Future Ownership Claim on a Physical Commodity
– The Economic Reality: A Financial Exposure to a Notional Commodity
- Is There a Responsible Way to Speculate on Commodities?
– Commodity Futures Speculation Can Add Liquidity, Aid Price Discovery and Reduce Economic Risk
– Value Investing Versus Momentum Investing
– Potential Impacts on Production and Consumption: The 2007 – 8 and 2011 Food Crises - Is It Responsible to Participate in Some Markets But Not Others?
– There Is a Responsible Fair Value for All Commodities—Not Just “Sustainable” Commodities
– Investing Holistically: Combining Commodity Investment With Corporate Engagement - Is There a Role for Engagement in Commodity Futures Markets?
– New Sustainable Commodity Futures Markets in Need of Liquidity
– Engaging With Exchanges to Develop Sustainable Commodity Futures Markets - Can One Invest in Commodities Both Responsibly and Passively?
– The Momentum Bias in Many Commodity Indices
– Problems With “Sustainable” Commodity Indices
Commodity Markets Can Be Improved, but Also Used to Send Price Signals to a Transitioning Economy
Source: Neuberger Berman. For illustrative purposes only.
