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Is There a Safety Net in Commodities?

If you think commodities are a safe haven in a down market, think again.


Video Transcript 

Commodities can have a great role in your portfolio, however, they don’t seem to be providing a lot of downside protection for the stock component of your portfolio.

As I show you in the chart in the video of the movement of the S&P 500 versus the Deutsche Bank Commodity Tracking Index (NYSE:DBC), you can see that when stocks have been moving lower, commodities have also been moving lower. When stocks have been moving higher, commodities have also been moving higher. This is a positive correlation between these two asset groups.

Now, there have been some times – and I show you some examples on the chart in the video – where commodities had a slightly different trajectory than stocks but, basically, they’ve been moving along almost in lock-step with each other as they go back and forth and back and forth.

So, that tells us that commodities as a whole [will generally mirror the broader market’s movement]. Now, DBC invests in a wide array of commodities, from agricultural commodities, to energy-based commodities to precious metals. It’s got it all in this fund, so you may find a little more diversification if you were to specialize in one commodity, say, oil or gold or some other commodity rather than all of them together.

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