A Superior Approach
The authors concluded: “Altogether, the results highlight the superiority of long/short strategies.” I would add that the authors measured futures returns by assuming that investors hold the nearest contract up to one month before maturity, and then rolled their position to the second-nearest contract.
Research has shown that managing the choice of roll dates, based on the cost of rolling for different maturities, has improved results. And avoiding forced trading on roll dates has also been found to have added value.
Given the concerns (and supporting evidence) that the “financialization” of commodities has likely increased the costs—and thus reduced the benefits—of long-only commodity strategies, the findings presented in this study provide investors with an alternative worth considering.
I’ll also note that the AQR Multi-Style Premium Fund includes long/short commodity positions (accounting for about 10 percent of the positions). In the interest of full disclosure, my firm, Buckingham, recommends AQR funds in constructing client portfolios, and I have a significant allocation to the fund.
Larry Swedroe is the director of research for The BAM Alliance, a community of more than 140 independent registered investment advisors throughout the country.
