Abstract
The paper explores different portfolio structures for a passive commodity investment. It finds that an equally-weighted portfolio of up to 30 commodities delivers a Sharpe ratio similar to that of equity indexes and Treasury bonds, with much lower volatility than popular commodity indexes. Furthermore, the paper analyzes the impact of changing the collateral of commodity futures from short term Treasury bills to Treasury bonds and notes of longer durations. In this case a substantial outperformance can be realized, coming not only from higher bond yields, but also from bonds rolldown, as well as higher rebalancing return.
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