Diversify with broad commodities
We believe broad commodity exposure offers an attractive mix of diversification and growth potential. Commodities offer a valuable hedge against inflation and supply shocks, and their typically low correlation with equities and bonds makes them an effective portfolio diversifier, especially in periods of market stress. Comparing historical drawdowns shows that a 10% addition of commodities often reduced losses in periods when stocks and bonds were positively correlated. In addition to geopolitical uncertainty in the Middle East, structural demand trends such as electrification and a looming El Niño for agriculture all support the case for maintaining exposure.
Gold
Gold’s “safe-haven” appeal has recently been offset by stronger-than-expected US economic data, higher real yields, a firmer USD, and hawkish market expectations for the Fed outlook. Looking ahead, however, we believe central bank demand, continued diversification away from the US dollar, and global debt concerns will remain important structural supports. We continue to view gold as a useful strategic diversifier, and we remain constructive on gold prices over the next 12 months.
Energy
Renewed tensions between the US and Iran underscore the fluid nature of geopolitical events, and uncertainty over how quickly shipping conditions and production can normalize is likely to keep energy markets sensitive. In our view, energy exposure can help protect against lingering supply uncertainty and inflation spillovers, even if the immediate geopolitical backdrop improves.
Industrial metals
Industrial metals, such as copper, have benefited from secular demand drivers such as electrification, the energy transition, and the ongoing global buildout of AI infrastructure. Prices have remained resilient despite global growth worries. While factors like tariffs and trade policy risks may keep prices volatile in the near term, demand trends remain constructive for the asset class over the longer term.
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