To me, this makes no sense. While Goldberg is right that equity funds have increased their correlation to equities, it has been more of a short-term phenomenon. Maybe it’s a long-term trend and maybe it isn’t. However, adding more equity funds in place of commodities just doesn’t make a lot of sense, as most equity funds have a high correlation to each other.
I do agree that international bond funds are a great diversifier and I’ve used them for about 20 years. I also started using commodity funds in the 90’s “when commodity funds weren’t cool.” I also agree with Goldberg in being concerned about the rise of popularity of these funds. We saw the same thing happen in 2002 with merger arbitrage when, after two years of stunning losses in the equity markets, every hedge fund in the world decided to put money into merger arbitrage. The results were predictable: merger arbitrage had its worst year ever in 2002.
Perhaps this is what we saw in the summer of 2008 with commodties and the run up in oil. Personally, I think the bloom is off commodities with many investors, but I could be wrong. For that reason, I’ve recently been investigating several other ways to have exposure to the commodities markets. One area is managed futures, which is an investment strategy that’s been around for a long time, but isn’t well known to most retail investors.
You can read the Kiplinger article by Steven Goldberg here.