Although commodity prices have swung widely recently, institutional investors continue to value them as a key diversifier, Reuters reports.So far this year, commodity indexes have underperformed major equity benchmarks. The best performer this year, for instance, is the Dow Jones-AIG Commodity Index, up 5.9% year to date, compared with the Dow Jones Industrial Average’s 9.3% climb. Nonetheless, large institutional investors continue to allocate between 2.5% and 5% of their portfolio to commodities, knowing that they swing in the opposite direction of equities and fixed income.

“The correlation between commodities and equities has turned more negative than a year ago, so as a result, the diversification argument has actually increased,” said Francisco Blanch, head of global commodity research at Merrill Lynch.

“The institutional interest we see in commodities is driven much more by the desire for diversification than it is by the view that tactically commodity prices will go up in the short term,” said Bob Greer, real return product manager at PIMCO.

Worldwide, there is an estimated $120 billion to $150 billion invested in commodity indexes.

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