Why Allocate to Commodities?
TOM BUTCHER: Why should investors consider an allocation to commodities?
ROLAND MORRIS: I think diversification is very important for investment portfolios. When you consider where commodities are now, we believe commodities have been building a long-term bottom. Commodities are cyclical in nature, but as an asset class, this could be a very good time for people to consider adding them to their portfolios. Commodities are always important from a diversification standpoint for investors generally, even on a long-term basis. When you think about what has been going on in the last few years with global central banks and their experimental monetary policy, many people believe that this has driven asset prices higher, particularly developed-market assets. This means that stocks and bonds may actually be over-valued because of central bank actions. If this is the case, commodities are in a bottoming pattern. If other asset prices are overvalued and there is any type of market correction, commodities have the potential to provide a very good return in the right part of the cycle. Additionally, if other events occurred, such as an inflationary event, commodities would be extremely important for an investor's portfolio. They would provide a reasonable hedge against inflationary pressures, which would likely hurt other assets. It is really about portfolio diversification. We also believe from a timing standpoint that this could be a very good time to add commodity investments given that we believe that the recent bear market cycle is in the process of resolving itself. And for a number of reasons, this is an important timing reason for investors to reconsider commodities investments.
BUTCHER: Why should investors consider an allocation to commodities?
MORRIS: I think the most important thing for investors is portfolio diversification. It is particularly important in a world that is dominated by central bank activity. Right now, for several reasons, we think commodities are very attractive and should be part of an investor's portfolio. We believe at VanEck that commodities have been in a fairly severe bear market for approximately five years. We now believe that they are in the process of forming a bottom, and that is really because we think that supply has been contained by reduced investment. From a timing standpoint, we think this is probably an appropriate time for investors to consider commodities. More broadly, when you consider other asset values around the world, central banks have been very active with experimental monetary policy since the 2009 financial crisis. Many people believe that they may have driven traditional asset classes to higher valuations -- or perhaps, more fairly, to be fully valued. If you look particularly at developed markets, we believe that there is decent probability that traditional stocks and bonds could now be over-valued. If this is the case, then the diversification of owning commodities would be really important for portfolios. This is particularly true if we were to resolve the economy going forward with any inflationary pressures, which is what central banks are trying to create. Commodities have the potential to be a very good hedge for any inflationary events that might occur. As I have said, the real key is that commodities may provide portfolio diversification. Other asset classes seem very fully valued at the moment, and commodities, to us, seem less expensive, and can provide an inflation hedge.
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