Why Calculo? Why Commodities?

The answer is simple yet complex. Let’s start with why commodities?

Commodities are a unique asset class that is often overlooked and does not play a big part of most investors portfolios. This is often due to lack of understanding of the commodity markets, the volatility of commodity markets or simply because lack of performance of holding a broad basket of commodities (long only). Let us try to dive into each of these elements – and tell you how Calculo can solve this!

  • Understanding Commodities

Most investors rely on stocks as a large allocation in their investment portfolio. They “understand” stocks and they “understand” the product/service the company delivers. But how well do they really understand the companies they invest in? Truth be told  – most don’t and they are often overexposed in single stocks due to emotional preference or lack of viewing the portfolio as a whole. 

Commodities offer exposure to the direct pricing of goods and utilities. No exposure to management decisions or other company specific parameters. 

The commodity market is traded on futures exchanges and offer equal access to both going long or short a broad array of commodities. 

This contradict with many investors allocation style and are viewed as risky and complex. Commodites are not something you put in the portfolio and forget – commodities needs active management and a professional approach. Only then, the commodity market can truly shine in the portfolio and the investor can reap the benefits of adding  a non correlated asset class to the portfolio, that can help lower the overall risk in the portfolio without affecting the expected return.

  • Commodities are volatile and risky?

As commodities are natural ressources, with a link to both supply and demand of the specific commodity and are instrumental to our daily lifes – they are also subject to high volatility. This comes to light when viewing both the individual commodity market but also when looking at the broad long only commodity index. 

The key is to exploit the volatility, harvest the alpha of the markets and package it in a product that carry all the fantastic benefits from commodities, without the volatility. 

At Calculo we have succeeded in doing just that. Since our launch in August 2018, we have delivered a product that.. 

  • non correlated to other investments (stock, real estate, bonds & PE)
  • low volatility (low risk)
  • ..has low drawdown and short recovery periods (recovering from loss)
  • ..has equity like returns at significantly lower volatility (see risk/reward chart in performance section)
  • Calculo vs. Long Only Commodity Index

Due to the nature of commodities, driven by supply and demand, there is no expectation that commodities will forever increase in price. Stocks on the other hand, does operate under that metric – a company produce goods, expand into new markets, increase revenue – ultimately the share price increase. Commodities on the other hand, increase on scarcity and fall on oversupply (simplified).

Therefore, if one only participates in one leg of the trading opportunity (buying commodities), they are not truly harnessing the full potential of the commodity market.
Philip Engel Carlsson

This can be best illustrated in the figure below, where we compare Calculo with the S&P Commodity Index.

Indexed Performance: Calculo vs. Long Only Commodity Index

Data prior to our launch in August 2018 is back test data

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