Metal and Fuel Commodities: A Catalyst in Portfolio Diversification for Fixed-income and Equity Investors

Abstract

The paper explores the incremental diversification benefit different asset classes offer to both fixed-income and equity investors in India. The additional asset categories considered in the study are domestically traded commodities (Precious metals, Base metals and Energy contracts) and international equities. The study shows that investors in India may include commodities like gold, aluminium, zinc and natural gas to the existing portfolio of equity and bonds to develop a portfolio with the best risk-adjusted returns. The most effective way of including these commodities is through a tactical asset allocation approach.