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There is a constant push for portfolio diversification into alternative investments, such as futures and commodities, but oftentimes it is difficult to make the leap. That’s where the concept of synthetic futures comes in. For those looking to avoid a huge initial investment and manageable risk, synthetic futures provide an opportunity to help you ease into portfolio diversification without betting the farm.
An Influential StudyIn 2004, a brief but powerful white paper was put out by the Yale International Center for Finance. The paper was entitled “The Facts and Fantasies about Commodity Futures”. In the paper, the authors set out to answer two questions
Are commodity futures riskier than stocks?
Can commodity futures provide diversification to other asset classes?
The answer to the first question was a resounding “no”. The study revealed that more than 45 commodity futures were not only comparable to the S&P 500, but they also consistently outperformed corporate...
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