UBS says commodities deserve a bigger place in diversified portfolios as inflation and geopolitical risks build, and it's telling investors to look beyond gold for that exposure. The bank points to falling correlation between commodities and developed-market equities, plus structural demand from energy and industrial metals, as the case for broader exposure.
UBS argues commodities can add diversification and new sources of return to portfolios as investors face renewed inflation risk, geopolitical uncertainty and structural demand for energy and industrial materials. While gold has become a popular hedge, the bank said investors should consider exposure beyond that single safe-haven asset.
Why commodities matter now
Gold rose about 10% in August, UBS said, creating an opening for investors sitting on large gains to lock in profits and diversify into other commodity sectors. At the same time, renewed attacks in the Middle East have increased the risk of energy-supply disruptions, while stronger-than-expected oil demand could support crude exposure over the longer term.
Industrial metals also carry structural support from electrification, rising power demand and artificial-intelligence infrastructure investment, UBS said, with demand growing faster than supply can keep pace in many commodity markets. UBS found that the correlation between developed-market equities and commodities has fallen over both three- and six-month periods over the past year, meaning commodities have shown a greater tendency to rise when stocks fall.
How much exposure UBS recommends
UBS' Chief Investment Office currently favors a mid- to high-single-digit allocation to commodities within a diversified portfolio, saying that level can provide meaningful diversification without taking on excessive risk. The right allocation still depends on an investor's objectives, risk tolerance and market outlook, with regular rebalancing important as conditions change.
Gold remains a strategic diversifier in UBS' view, supported by central-bank demand, continued diversification away from the dollar and concerns over global debt. The bank stays constructive on gold over the next 12 months, but says investors with substantial gains may consider reallocating part of that exposure into other commodities.
The trade-off is volatility. UBS said commodities tend to perform best when supply-demand imbalances or macro risks such as inflation and geopolitical shocks run high, so returns can swing sharply as those forces change.
A gap in stock portfolios
Source: Investing.com
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