Analyzing the Role of Commodity Futures in Investment Portfolios

As an investment manager specializing in alternative investments, you are tasked with analyzing the role of commodity futures in a diversified investment portfolio. Recently, your firm received an inquiry from a large institutional client seeking insights on how to strategically use commodity futures to hedge against inflation and economic uncertainty.

In your response, you are required to:

• Discuss the fundamental characteristics of commodity futures compared to other asset classes.
• Evaluate the benefits and risks associated with including commodity futures in a multi-asset portfolio.
• Provide a detailed analysis of how different economic scenarios, such as rising interest rates and geopolitical tensions, might influence the performance of commodity futures.
• Conclude with recommendations on the proportion of commodity futures to allocate in light of an inflationary environment versus a deflationary scenario.