Commodity Performance During Inflationary Periods
Broad commodity indices often outperform TIPS and REITs during inflationary times. This performance results from commodities being closely linked to price pressures and less affected by rising interest rates.
We see a strong case for holding exposure to raw materials, especially in the current climate. With trade barriers mounting, inflation running hot, and valuations across shares and corporate bonds appearing stretched, the advantages of this asset class stand out even more.
Historical data supports commodities as an option for those seeking returns that outpace rising prices over extended periods. The ability to function well during late-cycle economic conditions and periods of strain in supply chains makes them particularly valuable in times like these. When markets encounter stress, few instruments react as directly to shifting costs of goods and disruptions as they do.
Engaging in futures markets introduces a return advantage that stems from taking on risk tied to price swings. This so-called risk premium presents an additional layer of growth potential beyond the expected movement in prices. Unlike company stocks or government bonds, these contracts often respond differently to macroeconomic forces. At times, they may even move in the opposite direction altogether, which strengthens the case for their inclusion in broader portfolios.
Impact Of Inflation On Financial Assets
When inflation accelerates, few other liquid financial assets match the historical performance shown by commodity baskets. Linked directly to consumption and production costs, commodities tend to absorb rising input prices better than financial instruments sensitive to shifts in borrowing costs. By contrast, fixed-income securities and real estate holdings—while offering some inflation hedging—face greater pressure from tightening monetary conditions.
Given these factors, current conditions provide a supportive backdrop for continued engagement with these instruments.
