Each quarter, we share videos on investment topics to help you better understand how we manage portfolios. This quarter, we start with an update of recent portfolio allocation moves and then discuss the role of commodities in client portfolios.
We took advantage of the stock market pullback in April to slightly increase the allocation to large-cap U.S. stocks, where possible. When the stock market rebounded, we took the gains on the added amount and have reduced the large-cap allocation back to its neutral position. We are also shifting some of our exposure from oil and energy stocks to a new core commodities fund that we will cover a bit later.
When discussing investing in commodities, we are talking about basic natural resources like oil and natural gas that power our world, as well as agricultural products like wheat, coffee and cocoa. Commodities also include industrial metals like copper and platinum and precious metals like silver and gold.
One can add commodities to a portfolio in a couple of ways. One way is owning stock in companies that extract or process commodities like the oil company, Exxon, or global mining giant Rio Tinto. One can also invest in a fund that buys and sells commodities futures. Futures are contracts to buy or sell a certain commodity at some point in the future and are traded on exchanges such as the Chicago Mercantile Exchange.
Commodities can be useful in investment portfolios because they act differently than stocks and bonds. Big events that may send stocks down may also send certain commodities prices up. Inflation generally is bad for bond prices but has a positive effect on commodity prices. Commodities prices also tend to follow a multi-decade boom and bust cycle that differs from the typical economic cycle of a few years.
Demand and supply dynamics on a global scale cause the prices of many commodities to peak and then bottom out around the same time, which is dubbed the “commodities super cycle.” The last super cycle started with the rapid expansion of the Chinese economy in the 1990s, and hit its peak with the U.S. home building boom of the early 2000s. The 2008 Great Recession marked the beginning of the cycle’s decline, which bottomed around 2020 and is now in an upswing again.
Because of commodities’ diversification impact and the view that the commodities super cycle has a ways to go, we are beginning to use the AQR Risk-Balanced Commodities Strategy fund in client portfolios. The fund looks to actively invest in a broad array of commodities in a manner that focuses on return, while controlling the volatility. We are starting out small, with a 1 to 3% allocation in client portfolios depending on the investment strategy.
We hope you now have a better understanding of the part commodities can play in your portfolio. As always, if you have any questions about what was covered in this video, reach out to your Boulay financial advisor. To learn more about Boulay, please email us at learnmore@boulaygroup.com.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein. This is meant to be a reference/guide, individual circumstances can influence outcome, verify planning with accounting and financial professionals.
This information provided has been derived from sources believed to be reliable but is not guaranteed as to accuracy and does not purport to be complete analysis of the material discussed, nor does it constitute an offer or a solicitation of any offer to buy any securities, products or services mentioned. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Consult your financial professional before making any investment decision.
Indices are unmanaged and do not incur fees, one cannot directly invest in an index. Past performance does not guarantee future results. These opinions are based on our own observations and third-party research and are not intended to predict or depict performance of any investment. These views are as of the open of business on August 20, 2025, and are subject to change based on subsequent developments. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. These views should not be construed as a recommendation to buy or sell any securities. Diversification cannot guarantee a profit or protect against a loss. All investing involves risk, including the possible loss of principal. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.