Module 5 · Alternative Investments

Natural Resources

EN: Commodities, timberland, farmland, and the futures roll yield.
VN: Hàng hóa, lâm nghiệp, nông nghiệp và roll yield trên futures.

Commodities Energy, metals, agricultural; usually accessed via futures or ETPs.
Timberland Income from harvest + biological growth + land appreciation.
Farmland Income from crops + appreciation; "row" crops (annual) vs "permanent" (orchards).

\[ R_{\text{commodity}} = R_{\text{spot}} + R_{\text{roll}} + R_{\text{collateral}} \]

Spot Price change of underlying commodity.
Roll Difference between expiring and next-month futures (positive in backwardation, negative in contango).
Collateral Interest earned on cash margin.

Practice problem

Spot return +5%, roll yield −2% (contango), collateral yield 1%. Compute total commodity return.

Show solution

= 5 + (−2) + 1

= 4%

Commodity prices tend to rise with inflation. Performance in stagflation (high inflation, low growth) — historically a strong relative performer.

Practice problem

A commodity is in contango. An investor holds long futures and rolls each month. What is the impact of roll yield?

Show solution

Contango: futures > spot, and longer-dated > nearer-dated.

Rolling means selling cheap near-month and buying expensive far-month.

Roll yield is negative.

Negative roll yield — drags on returns over time.