Analyzing Investment Strategy for Physical Commodities

Physical commodities have gained significant attention from institutional investors due to their potential to hedge against inflation and provide diversification benefits. However, the investment in physical commodities also carries unique risks and requires a differentiated approach compared to financial securities.

Consider an investment strategy that involves allocating a portion of a portfolio to physical commodities such as gold, oil, and agricultural products. In your response, analyze the characteristics of investing in physical commodities, discuss the pros and cons of using physical commodities as an asset class, and evaluate how they can fit within an overall investment strategy. Additionally, address the logistical considerations involved in holding physical commodities, such as storage and insurance, and their implications for the investor.