Reference no: EM131053413

Can you please make an attempt to empirically demonstrate the Long-Term (eg 10, 20 or 30 years) benefits of allocating agriculture/commodities investments within a traditional institutional/pension fund portfolio (eg, one that is 55% fixed income (with some in cash); 35% equity; and 10% msc (eg commercial real estate/private equity). Will need to do some data mining here, but my assumption is even though the ag/commodites investments are quite volatile, because their often low and sometimes negative correlation to traditional assets they provide portfolio benefits (eg reduced vol, improved return, and or better sharpe ratio). To demonstrate we can use generic, publicly available, widely used market benchmarks for equity, fixed income, Real Estate/PE. We will need to try a few different approaches to show the benefit of a 3%, 5% or 10% allocation to ag/commodities (for the data we can use a managed futures/cta index if you can find them, ubsdj ag indices, farm land, and or ag equity indices. It may ctually be interesting to see a composite of these ag investments to make up the ag allocation

What I am trying to show is that adding a 5% allocation to commodities (or managed futures) to a traditional/typical pension fund portfolio (basically 65% Lehman Agg Bond index and 35% Equities (made up of S&P500, MSCI World or a mixture of the two) improves the risk adjusted return (reduces volatility or increases total return, and likely improves Sharpe and/or Sortino ratio) over the long term. I think this will particularly be true during periods of sharp downward volatility in the equity markets (eg 2008).

The attached market data should be helpful. Please try to data mine somewhat to see which of the ag or managed future index blends well with equity and fixed income (lehman agregate bond index, S&P500, and msci world) as suggested above.

Attachment:- Assignment.rar