Conquering Misperceptions about Commodity Futures Investing

Long-only commodity futures returns have been very disappointing over the last decade, leading some to wonder whether investing in commodities was a mistake. The poor performance is largely the result of poor “income returns,” a return building block similar to a stock’s dividend yield or a bond’s yield. Three misperceptions have contributed to this disappointment: (1) Commodities are a play on commodity prices, (2) commodity prices provide an inflation hedge, and (3) commodity markets, which are smaller than Facebook’s market capitalization, can absorb abundant capital. Learning from mistakes and conquering misperceptions are key to becoming a better investor.

Duke Scholars

Author Campbell R. Harvey Fuqua School of Business