Commodity ETFs boosting correlation between raw materials, stocks

SEP 21, 2011
The proliferation of commodity-based exchange traded funds has introduced a variety of new investors to the commodity markets, according to Timothy Andriesen, managing director of agriculture and alternative products at CME Group. “Growth has not just been from long-only investors,” he said. “The whole market composition is changing; we're seeing hedge funds and high frequency traders, among others.” Mr. Andriesen was part of a panel at the Morningstar ETF Invest Conference discussing some of the challenges and opportunities that come with investing in commodity-based ETFs. While the ETF market has provided access to a wide variety of commodities, the so-called “financialization” has also led to an increased correlation with equities. “I compare commodities to emerging markets, in terms of correlation,” said K. Geert Rouwenhorst, professor of finance at the Yale School of Management. “As money went into emerging markets that weren't previously correlated, they suddenly became more correlated,” he said. “Now the correlation between emerging and developed markets is 0.8.” In some ways, the same thing is happening in the commodity space, he explained. Even though commodities have historically had a low correlation to stocks, the increased access through ETFs might be changing that. “But we still think there's a reason to spread money around,” Mr. Rouwenhorst said. “As long as the correlation is not one, there are going to be diversification benefits.”

Latest News

The 2025 InvestmentNews Awards Excellence Awardees revealed
The 2025 InvestmentNews Awards Excellence Awardees revealed

From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.

Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty
Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty

Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.

Edward Jones joins the crowd to sell more alternative investments
Edward Jones joins the crowd to sell more alternative investments

“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.

Record RIA M&A activity marks strong start to 2025
Record RIA M&A activity marks strong start to 2025

Sellers shift focus: It's not about succession anymore.

IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients
IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients

Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.

SPONSORED Compliance in real time: Technology's expanding role in RIA oversight

RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.

SPONSORED Advisory firms confront crossroads amid historic wealth transfer

As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.