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10-year retrospective: Commodities – the lost asset class

This post is one of a series looking at returns in the decade after the financial crisis.

Commodities were hot in the early noughties. Prices boomed, they became easily accessible through the invention of Exchange Traded Commodities (ETCs), and the broad commodities story was amazing:

  • Long-term returns approaching equities.
  • Low to zero correlation with equities and bonds.
  • High correlation with unexpected inflation.

That list of selling points made broad commodities the dream diversifier.

Unfortunately it really was a dream, at least so far as the past ten years is concerned. Trustnet provides the chart that tells our story1:

Commodity returns 2009 - 2019
Subsequent research has poured hot and cold hogwash over the claims of equity like returns and reliable inflation hedging from commodities.

Meanwhile anyone living the dream woke up to high volatility and a decade of losing returns: -2% annualised over the last decade, or a -5% real return (see lime line C).

I looked at the ETFS Energy ETC due to its exposure to oil and gas (cyan line B). Oil’s boom during the 1970s was used as evidence that it’s a strong hedge against stagflationary recessions.

The oil price hit nosebleed territory in 2008 and despite the 2009 pullback, the rise of those energy-hungry emerging markets meant the oil price could only go one way, right?

That’s right, it went down. Subsequently the ETFS Energy ETC lost -9.5% annualised (-12.5% real), the worst performer of all in this review.

Goldie lots

Maybe the gold bugs were right along? Physical gold had a tremendous Global Financial Crisis returning 90% between November 2007 and February 2009. Since then it’s brought in a 7% annualised return (4% real).

Not bad for an asset with an expected real return of zero.

Gold is meant to be valuable because of its low correlation with other assets and that bears out in the chart above. Compare the pink line D (gold) with the black line A (MSCI World).

I’ve stayed out of gold in my accumulation years due to its lack of expected return and dividends but there’s a case for it in a deaccumulation portfolio.

Note that in our last 10-year retrospective recap we discussed in some detail getting gold exposure via the gold miners. That’s as opposed to owning the metal itself, which is what we’re talking about here.

Are any readers keeping their faith with broad commodities as an asset class over the next ten years? Let us know in the comments below.

Take it steady,

The Accumulator

We’ll continue to gaze back 10 years to see how several other passive-friendly strategies have fared. Subscribe to get all the posts.

  1. Trustnet provides annualised and cumulative return data for periods of up to 10 years. The results below are quoted in nominal £ returns, with dividends reinvested from 14th September 2009 to 13th September 2019. []
{ 20 comments… add one }
  • 1 Mr Optimistic October 15, 2019, 12:19 pm

    One of the complications with commodities is that many are priced in USD. Are the comparisons on equal footing in this respect? Surprised energy didn’t get a GBP boost after 2016.
    I held an all commodities etf a while back and lost interest, not least because I read an article here about how you were buying fwd contracts not the physical stuff and roll over disadvantaged the investor, or something like that.

  • 2 theta October 15, 2019, 2:34 pm

    The comparison should be in the same currency. GBP has lost 25% vs USD in the last 10 years (and even more compared to 12 years ago that was above 2 to 1), which obviously skews the results (even if it’s still not enough to completely change the picture)

  • 3 Mousecatcher007 October 15, 2019, 4:23 pm

    Some time ago I thought about buying a broad commodities ETF. But then I realised they’re actually punts on forward contracts which (if you’re to understand them properly) require a working knowledge of backwardation and contango, two terms which are so ugly they give me a migraine.

  • 4 Retirement Investing Today October 15, 2019, 6:18 pm

    I also started out with a broad commodities ETF and with continued learning realised the same thing. I still wanted a small ‘commodities’ spin in my portfolio though. The best I came up with was 5% allocated to a physical gold ETC.

  • 5 Matthew October 15, 2019, 6:59 pm

    If you keep your cash in (partially) copper coins, then if theres hyperinflation you can take them abroad to melt them down, thus your cash can act as a commodities hedge at the same time, sparing you from allocating portfolio to it

    But for the sort of apocolypse that would wipe out equities, bonds and cash, then food is probably the best commodity, ie rice or beans, and a gun

  • 6 Mousecatcher007 October 15, 2019, 7:59 pm

    @Retirement Investing Today

    Yes, my conclusion too: 5% in a gold ETC. Great minds etc etc …

  • 7 Neverland October 15, 2019, 9:37 pm

    I’m not a goldbug but I’m not sure looking at the performance of something over a single 10 year period really proves anything.

    Neil Woodford’s performance looked great over 25 years…

  • 8 The Accumulator October 15, 2019, 9:58 pm

    @ Mr Optimistic and Theta – Commodities are all priced in dollars. As a UK investor you’re exposed to the currency risk of the pound-dollar exchange rate. It doesn’t matter what currency the fund labels itself as. That’s just marketing. See:


    Short answer: the comparisons are apples-to-apples, at least insofar as Trustnet’s data is accurate.

    @ Neverland – 10 years doesn’t prove anything but it does tell me something about behaviour – my own, industry investment fads, and a little about the behaviour of assets but only when using the last decade as a lens to examine the wider historical context.

  • 9 theta October 16, 2019, 9:02 am

    Of course the currency denomination doesn’t matter *provided it’s the same currency for all of them*, either all in GBP or all in USD. This is not the case here, where you used two GBP denominated ones and two USD denominated, so it’s not apples to apples. The GBP denominated have higher total return (in GBP) given the GBP slide over the years. There are USD denominated MSCI World and All Commodities funds, you should use those to have an apples to apples comparison.

  • 10 Mr Optimistic October 16, 2019, 10:29 am

    @TA, ok thanks. Wasn’t sure if some were hedged and it was much easier to ask than to investigate :).
    I did have a look through monevator’s back catalogue of commodity related articles, of which there are quite a few and in sum these don’t make a convincing buy case.
    I did hold gold miners (in addition to gold) for a while but much too racey and I exited in short order in a fashion not dissimilar to jumping from a window with flames licking at my heels. The theory was fine ( leveraged exposure to gold), but my faith was found wanting.

  • 11 theta October 16, 2019, 12:35 pm

    Looking at the graph again, the physical gold seems to be GBP denominated as there is a jump in Jun16 and the peak is in 2019 as opposed to 2011. So 3 of the 4 funds are in GBP and one in USD.

  • 12 The Investor October 16, 2019, 2:40 pm

    @theta — It doesn’t matter if the fund is denominated in GBP or USD. What would make a difference is if it is hedged back to GBP or not.

    E.g. The gold ETF with ticker GBSP is hedged, whereas SGLP is not hedged.

    For more see:


  • 13 SemiPassive October 16, 2019, 3:11 pm

    Re: “The theory was fine ( leveraged exposure to gold), but my faith was found wanting”
    As we discussed on the previous retrospective below, in bear markets at least (when it matter most) the theory only seems to hold good 50% of the time anyway.

    I think my now established rules are to avoid forward contract based ETFs for anything other than relatively short term speculation, which I no longer do anyway.
    Hold Gold via a physical backed ETF or Sovereigns/Britannias, and not miners/producer ETFs. The 5% mentioned above sounds sensible actually, maybe up to 10% for those further up the Gollum spectrum.

    For exposure to other commodities just hold miners in general, and other natural resources such as oil and gas companies, as part of your UK and global trackers, or a specialist ETF or investment trust such as BlackRock Energy And Resources Income Trust.
    Most of them pay a fat dividend income to cushion the volatility.

  • 14 ZXSpectrum48 October 16, 2019, 7:02 pm

    I find it odd that gold is put together with genuine commodities like oil, platinum or softs. I was always taught that gold acted like a currency rather than a commodity. Specifically, it was a risk-off currency, more akin to holding funding currencies such as Swissy or Yen.

    The price action in the last decade substantiates it’s funding currency character. It did well in the crisis, a period where there was clearly no inflationary risk but the market was in a major risk off phase. More recently I bought it because it was a funding currency that had one major advantage: it yielded zero. That made it much higher yielding that other funding currencies, all of whom yield negative. I think that explains some of the recent price appreciation. Added to which it’s a currency that is not vulnerable to QE and Em central banks are in the process of significant reserve accumulation via gold, as they diversify away from G3 currencies.

  • 15 Sparschwein October 16, 2019, 9:44 pm

    Very interesting article and discussion. Commodities seemed attractive for diversification, inflation protection, and isn’t a decade of low returns a buying signal in the age of the everything-bubble…?
    But after digging into this more I’ve concluded that commodies other than PMs aren’t investable for the average person because the construction of futures based ETFs is flawed. There is some convincing data that these ETFs systematically lag their underlying indexes by a large margin.
    If anyone has found a workaround I’m all ears…
    Until then I’m sticking with a 10% allocation to physically backed previous metal ETFs and a dollop of miners.

  • 16 Sparschwein October 16, 2019, 9:57 pm

    Re gold I agree with @ZXS here. For that reason I moved gold ETFs from the “USD exposure” bucket into their own separate category.

  • 17 The Investor October 17, 2019, 2:26 pm

    While for understandable reasons financial specialists invariably treat gold as a currency, IMHO the reality is it’s an asset that wears many hats. That’s at the heart of its attractions, its drawbacks, and its controversies. It is as we all know a real asset, and it cannot be printed away (at least not yet, give physics a chance!) by governments or central banks. It has some practical real world uses in electronics, jewelry, and healthcare. But of course it’s also a fungible medium of exchange of last resort/a currency. It’s all these things at once.

    On another tack:

    More recently I bought it because it was a funding currency that had one major advantage: it yielded zero.

    That’s an excellent way of summarizing the opportunity cost issue!

  • 18 Mr Optimistic October 18, 2019, 12:29 pm

    Cash yields zero too, and GBP isn’t priced in $

  • 19 The Accumulator October 19, 2019, 5:20 pm

    @ Theta – here’s how to check my apples-to-apples claim. Go on to Trustnet multi-plot charting tool. Select an ETF denominated in a few different currencies (but not hedged). For example: iShares Core FTSE 100 UCITS ETF Inc GBP. You’ll also see this ETF is available in dollars, euros and Swiss francs. Pop them all on the chart and lo, they all have the same returns. Or do it with the iShares Core S&P 500 UCITS ETF Acc GBP / USD / EUR. I’d upload the chart to this comment but the functionality isn’t available. The link The Investor posted for you explains why denominated currencies don’t matter.

    @ Mr Optimistic, Sparschwein and Semi – I had a similar experience digging into commodities. It sounded good in theory but the more I dug into the available products, the more doubts surfaced. They seem flawed and if they’re not then I don’t understand them well enough to feel confident using them.

    @ Sparschwein – how do you cope with the volatility of the miners?

    @ Mr Optimistic – love the defenestration anecdote. I think I’d feel much the same.

  • 20 Sparschwein October 25, 2019, 12:25 am

    @ TA – the miners are a quarter of my precious metal allocation, small enough not to lose sleep over. I’m more worried about stock market risk (which the PMs are supposed to balance out, partially). And how to add more inflation protection. The Economist has just run a special report on “the end of inflation”, everyone seems to believe that inflation has disappeared for good, time to worry about inflation…

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