Tuesday, November 2, 2010

What role commodities?

Ken French talks about the role of commodities in a portfolio.  He makes a brilliant but sometimes overlooked point:

The claims that, going forward, commodity funds (i) will have the same Sharpe ratio as the stock market, (ii) will be negatively correlated with the returns on stocks and bonds, and (iii) will be a good hedge against inflation can't all be true. Who would want the other side of this trade?