Should you add commodities to your portfolio?

The outlook for many commodities is attractive, but “roll yield” can still be a headwind if you’re buying ETFs

Commodities such as copper cathode sheets are ready for sale
(Image credit: Getty Images)

Commodities spent much of the past decade in the doldrums, as the excitement about “supercycles” faded into a familiar boom-and-bust. In the aftermath of the pandemic, that’s changed: investors are getting far more involved in metals markets. Meanwhile, long-term commodity bulls are getting a favourable hearing as they set out a case for rising demand and tight supply caused by the electrification of the energy system

Bulls can get carried away by this in the short term: copper is actually down by $2,000 per tonne since Jeff Currie was interviewed by Bloomberg. The dynamics look very complex right now. Chinese end-user demand is soft due to the weak economy (especially in real estate – construction uses a lot of copper). Yet Chinese copper stocks in warehouses have been building steadily and are at multi-year highs (that could reflect traders building positions in anticipation of a big government stimulus programme, which has so far not been forthcoming). That’s a large amount of metal that might be dumped back on global markets

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Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.