Use Case: Inflation Hedging, 2022 Update

This article presents an updated analysis of the performance of passive and actively managed commodity inflation baskets in the context of rising inflation. We have evaluated the effectiveness of these baskets as potential hedges as we observe inflation levels reaching heights not seen since the early 1980s.

Over the span of six months from September 2021 to March 2022, both passive and actively managed commodity inflation baskets have demonstrated positive performance. The passive basket has outperformed the inflation breakeven benchmark, albeit with higher volatility.

Notable price spikes driven by the Ukraine-Russia conflict caused significant upward shocks across commodities, particularly in the energy and agricultural sectors.

Our findings support the suitability of commodity momentum strategies and trend-following programs for inflation-sensitive investors seeking real returns. The methodology involves creating liquid commodity futures baskets that represent movements and trends in the Consumer Price Index (CPI) basket, allowing for an investable commodity CPI inflation basket.

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