Commodities Led Last Week’s Rebound In Risk Assets

Most of the major asset classes posted gains during the holiday-shortened trading week through Thursday, Dec. 23, based on a set of ETFs. But with several risk factors lurking in the final trading days of the year, investors are wondering if last week’s recovery in asset prices will extend to the closing bell for 2021.

Animal spirits were certainly alive and kicking in commodities last week via WisdomTree Commodity (GCC), which surged 3.2%. The weekly pop marks the ETF’s biggest weekly increase in two months.

Commodities are one of the top-performing asset classes for 2021, but analysts at ING are cautious on the outlook for commodities in 2022, based on analysis from earlier in the month. Fitch Solutions also sees a case for a neutral to slightly bearish outlook for commodities in the new year.   

Meanwhile, bonds were last week’s losers for the major asset classes. A broad measure of US fixed income (BND) and foreign government bonds in developed markets (BWX) retreated in the week just passed.

By contrast, a broad rally in risk assets lifted the Global Market Index (GMI.F) — an unmanaged benchmark (maintained by CapitalSpectator.com) that holds all the major asset classes (except cash) in market-value weights via ETF proxies. GMI.F rebounded with a strong 1.7% gain last week.

For the one-year change, US real estate investment trusts remain the leader by far. Vanguard Real Estate (VNQ) is ahead by a sizzling 38.7% for the trailing 12-month window. US equities (VTI) are a distant second with a 26.2% rally.

Several asset classes remain under water for the past year. The biggest setback: bonds issued by governments in emerging markets via EMLC, which has shed 8.3%.

GMI.F posted a healthy 14.6% increase at last week’s close for the trailing one-year window.

Reviewing the major asset classes through a drawdown lens continues to show that most markets are still posting moderate peak-to-trough declines (no deeper than -10%). The exceptions: emerging markets stocks (VWO), emerging markets bonds (EMLC) and commodities (GCC), which are currently posting drawdowns in excess of 10% declines.

GMI.F’s current drawdown is -1.3%.

Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno