'Investing' in Commodity Futures Markets: Are the Lambs Being Led to Slaughter?

Investments into commodity-linked investments have grown considerably over the last five years as individuals and institutions have embraced alternative investments. However, unlike investments in equities or real estate, commodity futures markets produce no earnings and are arguably not even a capital asset. So, the source of returns and the expected returns for commodity futures investments is unclear. This paper examines the history of returns for static long-only futures investments over five decades. The research highlights the following features of commodity futures investments: 1) returns to individual futures markets are zero, 2) returns to futures market portfolios depend critically on the weighting schemes and the embedded trading strategy, and 3) historical returns are not statistically different from zero and are driven by price episodes such as 1972-1974.