The perceived efficiency of an investment can change based on investment horizon and how risk is measured. This is something we explored in a Research Brief recently released through the CFA Institute Research Foundation titled "Investment Horizon, Serial Correlation, and Better (Retirement) Portfolios."

In this piece, our focus narrows to how the optimal allocation to real assets, in particular commodities, varies by investment horizon, especially when considering inflation. We demonstrate that while commodities may appear to be relatively inefficient when focusing just on annual (calendar year) historical risk and return values, when viewed over longer time horizons (i.e., considering serial dependencies) the asset class becomes significantly more efficient and worthy of consideration in client portfolios, particularly for inflation sensitive investors like those savings for retirement.

In addition, we believe that we are in the early stages of a longer-term bull cycle for commodities, that makes it an attractive asset class to incorporate into strategic portfolio allocations. The first section of this paper provides an overview of this belief.