JSS Commodity - Diversified Strategy
Successful diversification in commodities markets
Commodities do well in the mid-to-late stages of an economic cycle as demand is usually high at such points in time. Also, inflation hedging and portfolio diversification are increasingly important goals and commodities can provide both as they are real assets with low correlations to other asset classes. Thus, investors are increasingly interested in commodity solutions.
J. Safra Sarasin Sustainable Asset Management can offer investors a time-tested solution for investing in commodities. With a live track record of outperforming its benchmark for more than a decade, the strategy is the core of our commodities platform. It aims to provide a diversified exposure to commodities markets and to generate outperformance through a combination of systematic and discretionary portfolio management.
Commodity selection and allocation are done systematically. Out of a universe of liquid and tradable commodities, the selection is conducted based on the volatility and correlation properties of the single commodities. The allocation is made so that the three sectors as well as the commodities within their given sector are equally weighted. The combination of these two steps creates a broadly diversified portfolio which aims, via the monthly rebalancing process, at harvesting diversification returns. The last step in the investment process, the term structure implementation, is done actively and can generate additional alpha.
The investment approach has remained stable since the launch of the strategy in 2006. Historically, both the systematic and the discretionary elements of the strategy have contributed to the strategy’s outperformance. It is of note that this investment approach has worked in both periods of rising and decreasing commodity prices.
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