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Commodities vs Commodity ETFs

Good or bad proxies?

Nicolas Rabener
10 min read
7 Mar 2022

SUMMARY

  • The average correlation between oil and oil ETFs was only 0.8
  • Gold ETFs provide better exposure to gold than oil ETFs to oil
  • Gold mining stocks are hybrids that feature gold and equity beta

INTRODUCTION

As the war in Russia unfolded, crude oil (WTI) breached $100 per barrel, which was last seen in 2014. Inflation was already at a multi-decade-high level in most developed countries before this geopolitical catastrophe, but is now expected to rise even further.

Although investors have spent more time on how to deal with inflation in the last 12 months than in the previous decade, these new events likely require more work on portfolio construction to avoid negative real returns (read Building an Inflation Portfolio Using Asset Classes).

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