Uncertainty in the Middle East highlight the case for broad commodity exposure.
US President Donald Trump said he’s holding off from new strikes on Iran in hopes of quickly reaching a deal to reopen the Strait of Hormuz.
Still, the US-Iran conflict has recently widened geographically into new regions. Attacks from the Iran-aligned Houthis also disrupted energy flows from the Red Sea.
Broad commodities have recovered from their late June lows, based on the UBS CMCI Composite total return index (USD), with year-to-date gains of 22.8%.
But fundamentals are also supportive for commodities.
AI infrastructure and electrification underpin the long-term outlook of industrial metals such as copper.
Forecasts point to an 81% probability that the current El Niño episode develops into a "very strong" or "super" El Niño by the end of the year and a 97% chance that the conditions persist into next year.
Gold should continue to be supported by central bank demand and reserve diversification despite more challenging near-term outlook.
So, we continue to favor commodities, with a focus on active management.
Commodities have historically shown low correlations with equities and bonds, making them a useful portfolio diversifier.
A diversified, regularly rebalanced exposure is the simplest way to capture most of the asset class’s benefits, while selective tilts can add value when conviction is high.
However, investors must be aware of unique risks such as price swings and costs associated with futures or physical holdings.
New this week
The World Gold Council’s latest report points to weaker demand from investment and jewelry side, but central bank and over-the-counter gold demand were both strong in the second quarter.
Did you know?
- Investors can access commodities through diversified indices, exchange-traded funds (ETFs), exchange-traded commodities (ETCs), or structured investments.
- From January 1999 through May 2026, commodities showed a correlation of 0.44 with global equities and -0.04 with US bonds, supporting their role as a differentiated return source.
- For investors with substantial allocations and significant unrealized profits in gold, broadening commodity exposure to include copper, aluminum, and agricultural assets can help diversify sources of future return, in our view.
Investment view
Commodities will continue to play a prominent role in portfolios, in our view, offering diversification amid supply-demand imbalances, geopolitical risks, and the global energy transition. We like broad commodity exposure, with an active approach amid still elevated volatility.
