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ETF Specialist

A Fresh Look at Commodities

An investment in commodities can offer some benefits, but they may be overhyped.

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Investing in commodities can be a little intimidating. They are frequently touted for their attractive long-term returns, diversification benefits, and as a hedge against both inflation and a decline in the value of the dollar. But in light of commodities' poor recent performance, and seemingly high correlation with stocks, it is worth re-evaluating each of these arguments in turn.

It can be difficult to understand how a piece of metal or stash of corn can offer investors a real return over the long run. After all, the immediate needs of producers and consumers determine commodity spot prices, rather than investors' return requirements. However, several researchers have argued that commodity futures contracts historically have compensated investors for offering price insurance to commodity producers (see Facts and Fantasies about Commodity Futures).

Alex Bryan does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.