Commodity

For institutional investors

A well-diversified portfolio goes beyond equities and fixed income. An allocation to commodities helps to diversify your institution’s portfolio while also providing some inflation protection.

Commodity intro icon

Parametric’s Commodity Strategy uses a unique portfolio construction process that provides greater diversification than traditional commodity benchmarks. Through intelligent design and rules-based methodologies, the strategy seeks to outperform the Bloomberg Commodity Index over three to five years, while experiencing 90% to 95% of the index’s volatility.

There is no guarantee that the investment objective will be achieved. The targeted return is hypothetical and should not be relied upon to make investment decisions. The targeted return is aspirational in nature and is not based on criteria and assumptions. All investments are subject to the risk of loss. See disclosures for additional information.

Investing in a commodity strategy involves risk. All investments are subject to loss. Learn more.

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The value of commodity investments will generally be affected by overall market movements and factors specific to a particular industry or commodity, which may include weather, embargoes, tariffs, health, 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 to tax or regulatory constraints.

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Why choose Parametric?

$439.1B+

Total firm AUM

$3.5B+

Commodity AUM

30+

Years of equity, derivative, and strategy experience

As of 6/30/2023

How it works

Reweighting
Rebalancing
Collateral

Parametric Commodity aims to avoid concentrations by diversifying across multiple commodity types and sectors, including allocations to non-index commodities. This gives investors access to underrepresented commodities and enhanced diversification. The portfolio is constructed based on a system of target weights. We assign commodities to exposure tiers based on market liquidity, with each commodity in a tier receiving equal weight. Finally, we modify these target weights to reduce unintentional concentrations that might be introduced otherwise.

We maintain target weights and allocations through regular rebalancing. These rebalancing activities exploit the volatility and low correlations of commodities by systematically selling when prices go up and buying when they go down, seeking to harvest a rebalancing alpha.

We avoid risky investments by investing collateral in US Treasury instruments. This arises from the belief that returns should be driven by commodity exposures, not the collateral pool.

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Rebalancing

Diversification, intelligently designed

Unlike traditional asset classes, commodities don’t have a “market cap” equivalent. As a result, each commodity index provider constructs benchmarks according to its own unique example. While no benchmark is superior to another, they often exhibit sector concentrations, particularly when it comes to crude oil and agriculture.

Parametric avoids these concentrations by broadly diversifying across commodity types and sectors, including significant allocations to non-index commodities. That gives investors access to underrepresented commodities and increases overall portfolio diversification.

We reweight the portfolio to reduce concentration risk and dynamically rebalance through time to reinforce diversification. Our rebalancing techniques seek to enhance potential returns while minimizing implementation friction.

Pie chart depicting an example of weighted commodity types including 37% crude oil, 6.5% corn, 6.1% gold, and others from the S&P GSCI index.

Pie chart depicting an example of weighted commodity types including 14.8% gold, 10.4% crude oil, 8.4% natural gas, and others from the BCOM index.

Pie chart depicting an example of weighted commodity types including 23% crude oil, 6% natural gas, 5% gasoline, and others from the REUTERS/CRB index.

Sources: Bloomberg, Parametric as of 12/31/2020. It is not possible to invest directly in an index.

Intended benefits of Commodity Strategy

Inflation protection

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Commodity prices are correlated with inflation. An allocation to commodities acts as an inflation hedge.

Exposure

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Our long-only strategy lets investors fully capture the characteristics of the commodity asset class.

Transparency

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Our Commodity Strategy uses an easy-to-understand rules-based methodology to avoid human bias.

Diversification

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Our investment process maintains diversification across commodity types and sectors and gives you exposure to commodities not traditionally included in most indexes.