• / Free eNewsletters & Magazine
  • / My Account
Home>CLS: Managed Portfolios – Commodities – Inflation

Related Content

  1. Videos
  2. Articles
  1. Bucket Portfolios for Retirement Income: Step by Step

    Morningstar's Christine Benz walks investors through the basics of setting up and maintaining a 'bucket' retirement portfolio, including some of her favorite funds for retirees.

  2. Cream of the Crop: Our Favorite Funds in All Flavors

    Morningstar's Russ Kinnel, Sarah Bush, and Christine Benz highlight their top fund picks for domestic and foreign equity, core bond , inflation -protected securities, and much more.

  3. Making Money Last in Retirement

    Panel discussion: Christine Benz, advisor Mark Balasa, and Morningstar columnist Mark Miller discuss how withdrawal rates, asset allocation, Social Security decisions, and long -term-care insurance factor into portfolio sustainability.

  4. Morningstar's Dividend Playbook

    DividendInvestor editor Josh Peters walks investors through his drill for uncovering sustainable and growing dividends in this special presentation.

CLS: Managed Portfolios – Commodities – Inflation

04/07/2015

March Market Review
The global stock markets slipped in March but still finished the quarter higher. The overall U.S. market (Russell 3000) fell 1% last month, though still gained nearly 2% for the first three months. Meanwhile, the S&P 500 (a better measure of large companies) lost just less than 2% (1% for the quarter). International markets also lost nearly 2% (but finished the quarter over 3% higher). Domestic small caps (Russell 2000), which have lagged over the last year, bucked the trend and finished March higher by nearly 2%, and up 4% for the year.

The bond market (Barclays Capital Aggregate Bond Index) gained just under 1% last month and is now up nearly 2% for the year. The 10-year U.S. Treasury bond yield moved higher last month closing at 1.9%.

Commodities, meanwhile, lost over 5% last month. They are now down nearly 6% for 2015 and over 27% for the last year!

CLS-Managed Portfolios
CLS-managed portfolios had solid returns in the first quarter. In general, our increased exposure to international securities helped, particularly the developed regions such as Europe and Japan. Our high quality theme for domestic equities was also a plus as large cap growth stocks outperformed in general.  Our sector exposures did detract a bit, however, as two sectors we emphasized lagged: technology and energy. On the latter, any exposure to commodity prices did not help.

As for the bond market, we continue to be short duration (i.e. have more short-term bonds) and have a tilt toward more yield/credit risk (i.e. an emphasis on corporate bonds).

Commodities
The aforementioned commodity losses is one of the big stories in the markets this year, and it’s driven by a few factors, including the impressive strength of the U.S. dollar. For many investors, the key question has now become: Should commodities still be held in globally balanced, diversified portfolios for long-term investors? In short, I believe they should.

Let’s first work with a couple definitions. Asset allocation decisions can be grouped into two basic categories:

  • Strategic Will the asset class have a dedicated presence in long-term holdings? This is generally defined as a long-term strategic portfolio weight.
  • Tactical Will the asset class, based on current valuations and market conditions, be more or less emphasized from the long-term strategic target?

At CLS, we believe that commodities deserve a strategic weight. The simple reason is that commodities have historically generated reasonable long-term returns and have helped diversify investment portfolios (in other words, they have helped lower overall portfolio volatility). Given how commodities respond differently than stocks and bonds due to inflation changes and expectations, it makes sense that commodities will continue to provide uncorrelated returns.

©2017 Morningstar Advisor. All right reserved.