This piece is as interesting for the stats as it is for the narrative. If you follow the jump you'll see how GS bagged an entire generation of institutional managers with their GSCI and the long-only-index-funds based upon it.
Commodities aren't an asset class, commodities are for trading.
And over time the commercials have to, in aggregate, win, or the game ends.
From Verdad Capital, May 24:
How Boom Turned to Bust
In
the years leading up to the financial crisis, institutional investors
significantly increased their allocations to commodity futures, from
just $15 billion in 2003 to over $200 billion in 2008, according to a CFTC Staff Report. Most prominently, Harvard’s endowment took its target allocation to commodities from 6% in 2000 to 18% in 2008.
Commodity prices were in a sharp upswing at the time, driven by a surge
in demand from China. And the hot topic of conversation among allocators
was a major paper by two professors at Yale. Gary Gorton and Geert
Rouwenhorst argued in a seminal 2006 paper
that commodity futures had a higher risk-adjusted return than stocks
and bonds (Figure 1) as well as a positive correlation to inflation
(Figure 2) and thus could play an important diversifying role in
investor portfolios.
Figure 1: Annualized Monthly Returns (1959–2004)
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Source: Gorton and Rouwenhorst, 2006
Figure 2: Correlation of Assets with Inflation (1959–2004)
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Source: Gorton and Rouwenhorst, 2006
With surging prices, major academic support, and Harvard’s endowment as
the bell cow, the race to dump money into commodities was on.
But we now know this story did not play out as endowment managers had
hoped or as Gorton and Rouwenhorst’s historical data might have implied.
In fact, the increased enthusiasm for commodities nearly perfectly
top-ticked the peak of a commodity super cycle. The financial crisis of
2008 would lead to a spectacular commodity crash and then a subsequent
decade of muted returns, as the graph below shows.
Figure 3: GSCI vs. S&P 500 (1990–2020), Indexed to 100, Log Scale
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Source: Bloomberg
Institutions ended up adding to their asset mix shortly before
commodities entered one of the worst periods of underperformance in
history. In Figure 4, we show that a hypothetical buy-and-hold commodity
investor between 2006 and 2020 would have returned -7.5% compounded
annually and endured a maximum drawdown of over 80%....
....MUCH MORE
