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Article

An Empirical Examination of the Performance of Commodity Mutual Funds

Srinidhi Kanuri, Robert W. McLeod and D.K. Malhotra
The Journal of Wealth Management Spring 2016, 18 (4) 90-106; DOI: https://doi.org/10.3905/jwm.2016.18.4.090
Srinidhi Kanuri
is with the Department of Finance, Real Estate, and Business Law in the College of Business at the University of Southern Mississippi in Hattiesburg, MS.
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  • For correspondence: srinidhi.kanuri@usm.edu
Robert W. McLeod
is the John Bickley Faculty Fellow in Finance and Insurance in the Department of Economics, Finance, and Legal Studies in the Culverhouse College of Business at the University of Alabama in Tuscaloosa, AL.
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  • For correspondence: rmcleod@cba.ua.edu
D.K. Malhotra
is the Nydick Family Term Chair, professor of finance, and director of MBA and MS tax programs in the School of Business Administration at Philadelphia University in Philadelphia, PA.
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  • For correspondence: malhotrad@philau.edu
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Abstract

The use of commodities to hedge inflation risk and diversify portfolios is generally thought to be an important consideration for portfolio management. Direct investment in commodities or commodity derivatives requires that investors have significant assets and/or expertise in these commodities or their respective derivatives markets. As an alternative to direct investment, investors in recent years have increasingly resorted to the use of commodity-based mutual funds. In this article we evaluate the performance, persistence, market timing, and selectivity of four categories of mutual funds whose returns are based on commodity prices. Our period of analysis begins with each fund’s inception and ends in December of 2012. Our results indicate that these funds have not been able to create positive alphas for their investors, have negative or insignificant performance persistence, and have no market timing ability. Some of the categories of funds, however, do exhibit some selectivity. We did find that when these commodity-based funds’ performance was evaluated during specific time periods of market downturns (e.g., the 2000 stock market downturn and the financial crisis that began in late 2007), their performance was significantly positive, which indicates that these funds provide a good hedge during bear markets/financial crises.

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The Journal of Wealth Management: 18 (4)
The Journal of Wealth Management
Vol. 18, Issue 4
Spring 2016
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An Empirical Examination of the Performance of Commodity Mutual Funds
Srinidhi Kanuri, Robert W. McLeod, D.K. Malhotra
The Journal of Wealth Management Jan 2016, 18 (4) 90-106; DOI: 10.3905/jwm.2016.18.4.090

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An Empirical Examination of the Performance of Commodity Mutual Funds
Srinidhi Kanuri, Robert W. McLeod, D.K. Malhotra
The Journal of Wealth Management Jan 2016, 18 (4) 90-106; DOI: 10.3905/jwm.2016.18.4.090
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