Commodities as an Asset Class

Commodities are fundamentally different from stocks and bonds. While they are investable assets, they are not capital assets. Commodities do not generate a stream of dividends, interest payments, or other income that can be discounted in order to calculate a net present value. commodities are valued because they can be consumed or transformed into something else which can be consumed. One of the benefits of investing in commodities via an index is that an investor can gain exposure to a broad range of commodities, which tends to enhance diversification, reduce volatility and maximise the Sharpe ratio.

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