Near Calgary, there is a town named Black Diamond. Everybody here understands the origin of the name given the history of oil production and the related economic benefits. But while diamonds are the metaphor, it is a commodity that is hard to understand and thus seldom considered in terms in a portfolio context. Gold is another story.
Together, gold and oil are talked about more than all other commodities combined. They were both amongst the first to become available to retail investors via exchange traded funds (ETFs). And while there may be diversification benefits to including either or both in an equity dominated portfolio, the need for each is not equivalent.
Oil has for some, become the vilified symbol driving climate and environmental efforts, this does not takeaway from its current importance. Oil is critical to running most aspects of our modern society, economy and trade. It is the most important energy source yet its use goes beyond transportation from health and medicine to electronics and textiles. From medicines like Aspirin and antiseptics to anything plastic, from water pipes to contact lenses. The list is almost endless.
As such, there is no doubt that oil serves a critical role as an input to most everything, yet it can also serve a purpose in a portfolio. Given its importance, the inflation aspect cannot be ignored and has been highlighted by central banks. Oil and Inflation are indeed correlated higher than gold.
Moreover, direct investments in the commodity (versus equities of producers) can have a beneficial effect. This has been argued with gold for a long time. There is no need to be an “oil bug” alongside the “gold bugs” to justify this – we can demonstrate the value.
The common belief that using gold as a proxy for all commodities is a mistake that is easily proven given the inter-commodity correlation is low. As such, adding other commodities may help, but adding oil is important. They don’t call it black gold for nothing.
For more about the Auspice CTA and commodity strategies and the potential portfolio benefits, please give us a call.
IMPORTANT DISCLAIMERS AND NOTES
Futures trading is speculative and is not suitable for all customers. Past results is not necessarily indicative of future results. This document is for information purposes only and should not be construed as an offer, recommendation or solicitation to conclude a transaction and should not be treated as giving investment advice. Auspice Capital Advisors Ltd. makes no representation or warranty relating to any information herein, which is derived from independent sources. No securities regulatory authority has expressed an opinion about the securities offered herein and it is an offence to claim otherwise.
For U.S. investors, any reference to the Auspice Diversified Strategy or Program, “ADP”, is only available to Qualified Eligible Persons “QEP’s” as defined by CFTC Regulation 4.7.
For Canadian investors, any reference to the Auspice Diversified Strategy or Program, “ADP”, is only available to “Accredited Investors” as defined by CSA NI 45-106.