The Structure, Conduct and Performance of Publicly Traded Commodity Funds: A Review

Abstract

In this paper, a comprehensive review of more than a decade of research on the commodity funds is being provided. There is overwhelming evidence indicating that commodity funds are low return, high risk investments. Research also has shown that they are poor hedges against inflation. Results also indicate that commodity funds exhibit skewness thereby offering investors potential opportunity for large gains. Research also seems to suggest that they are not valuable additions to stock or bond portfolios of investors in terms of enlarging the efficient frontier. With respect to using past data to predict future performance, there is evidence that past risk measures of standard deviations can be used to predict future risk measures of standard deviations. Furthermore, funds with low standard deviations in the past produce superior performance in the future as shown by higher Sharpe measure of performance. There is also research support that shows that managers who have managed between 1 to 3 funds do well, and successful past track record of general partners contributes to their future success. Furthermore, higher than average fees lead to higher than average fund return!