1. Investing in Commodities: - Overview of Instruments and Strategies - Benchmark Selection - Strategy Evaluation - Analysis of Benefit to a Portfolio

2. Investing in Commodities: Overview of Instruments and Strategies
Types of Investment Vehicles
Direct - Physical Commodities
Indirect
Traditional
Alternative
Exchange Traded Funds
Derivatives (Futures & Options)
CPOs
Exchange Traded Notes
Swaps
Real Asset Partnerships
Mutual Funds
Equities of Commodity Based Companies
CTAs
Structured Notes
Types of Strategies
Traditional
Alternative
Passive-Long Only Index Investing
Direct Physical Assets/Infrastructure
Long Only “Enhanced” Index Investing
Systematic Trend Following
Fully Active, Long Only Investing
Active Hedged Investing (Unconstrained – Long and Short)
Equities of Commodity Based Companies

3. Benchmark Selection S&P Goldman Sachs Commodities Index (S&P GSCI)
Data since 1970
Weighted by average world production of last 5 years
Broadly diversified – 24 commodities
6 energy products
7 metals
11 agricultural/livestock products
Dow Jones Commodity Index (DJ-UBS)
Data since 1991
Weighted by production and liquidity, rebalance annually
Broadly diversified – 19 commodities
4 energy products
6 metals
9 agricultural/livestock products
Commodities set into 7 groups, limited to 33% at beginning of year
No single commodity may constitute less than 2% or more than 15% in the index at the beginning of the year.
Source: Goldman Sachs

4. Benchmark Selection: GSCI vs DJ-UBS
Since 1991
GSCI
DJ-UBS
Return Annualized
3.48%
5.41%
Standard Deviation
21.14%
15.01%
Max Drawdown
-67.7%
-54.3%

5. Strategy Evaluation: How to evaluate an Enhanced Index approach?
Benchmark Choice
Commodity Indexes Components
Alpha/Return Enhancement Opportunities
Modified Roll Strategies:
-Alternative Roll Dates
-Forward Exposure Modifications
-Seasonality Roll Modifications
Return of Commodity Futures (non-collateralized)
Index Selection
Return of Collateral (Assumed T-Bills)
Management of Collateral
Selection of Collateral + + -
Passive Manager Fees -
Active Investment Manager Fees
Total Return of Index
Total Return of Portfolio

6. Commodities as part of a Strategic Asset Allocation
Adding Commodities moves efficient frontier up and to left across all points
Standard Deviation
Long-Term Historical Results: Based on Return, Risk and Correlation assumptions from 1970 to 1976 starting point through 2011

7. Adding Commodities – Impact to Asset Allocation
(Pre-Retirement Scenario Analysis)

8. 50% Equity/50% Fixed Income Portfolio
Adding Commodities – Impact to Asset Allocation
(Post-Retirement Scenario Analysis)
50% Equity/50% Fixed Income Portfolio
Absolute change in probability of assets maintaining purchase power over 30 years by adding 20% commodities (from equities) to a 50/50 portfolio.
Withdrawal Rates
Inflation Ranges 3% 4% 5% 6%
All
21.21%
32.83%
34.02%
22.05%
2.5% to 3%
5.00%
8.75%
3.75%
3% to 3.5%
6.05%
10.68%
10.64%
7.56%
3.5% to 4%
9.56%
17.41%
22.37%
17.60%
4% to 4.5%
16.21%
28.04%
32.52%
23.98%
4.50% to 5%
26.84%
41.72%
42.27%
25.08%
5% to 5.5%
40.91%
54.90%
47.11%
23.59%
5.5% to 6%
59.24%
67.63%
44.63%
18.32%
Results shown are for 50,000 simulations of a historical bootstrapping of returns from 1970 to 2010 based on broad asset classes; GSCI utilized for commodities