Financial Charts

Commodity

Our Commodity strategy seeks to avoid the concentrations that occur in mainstream commodity indexes by investing broadly across commodity types. Our active reweighting and systematic rebalancing seek to capture a diversification premium.

Strategy Goals

Parametric’s Systematic Alpha strategies are broadly diversified and dynamically rebalanced portfolios designed to outperform capitalization-weighted approaches over the long term with less risk. Diversification is established via a system of portfolio target weights. As market forces move the portfolios’ holdings away from the target weights, diversification is re-established via a trigger-based rebalancing process. Our active reweighting and rebalancing have the potential to generate excess returns. Parametric’s experience constructing and managing portfolios for over 25 years has informed and enhanced the development of our Systematic Alpha strategies. 

The Parametric Commodity strategy seeks to add value through disciplined portfolio construction and rebalancing among individual commodities, while maintaining the diversifying and inflation-fighting characteristics which may make the commodity asset class appealing. By capitalizing on commodity-specific volatility and the low level of cross-correlation prevalent in commodity markets, the strategy seeks to allow long-term exposure to the commodity asset class with more consistent returns than the Bloomberg Commodity Index Total Return. 

Investment Philosophy

We utilize an engineered and disciplined approach to exploit the unique characteristics of the commodity asset class.

 

Reweight

 

  • Increase diversification by reweighting
  • Split into tiers by liquidity; equally weight all contracts in each tier
  • Scale upstream and similar commodities down a tier

 

Rebalance

 

  • Rebalance to target weights monthly as contracts are rolled
  • Rebalance to target when portfolio weights fall below 80%, or exceed 120%, of target weight

 

Collateral

 

  • U.S. Treasury bills, 3 -12 month maturity
  • Avoids risky investments

Investing in a commodities strategy has certain risks. The value of commodities investments will generally be affected by overall market movements and factors specific to a particular industry or commodity, which may include weather, embargos, tariffs, health, and political, international and regulatory developments. Economic events and other events (whether real or perceived) can reduce the demand for commodities, which may reduce market prices and cause their value to fall. The use of derivatives can lead to losses or adverse movements in the price or value of the asset, index, rate or instrument underlying a derivative due to failure of a counterparty or due to tax or regulatory constraints.

This Commodity strategy is offered by Parametric Investment & Overlay Strategies.  For additional information please visit the Disclosure page.

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