———————— An EDHEC- Institute Working Paper Weathering the Storm in Commodity Risk Premia Strategies

May 2019 ———————— Weathering the Storm in Commodity Risk Premia Strategies 4

About EDHEC-Risk Institute 10

EDHEC-Risk Institute Publications and Position Papers (2016-2019) 16

Portfolio weights back to their original weights, can be a source of additional performance.

This article is based on the “Weathering the Storm in Risk Premia Strategies in the Commodity Markets” session at UBS’ Risk Premia Conference, which was held at the New York Stock Exchange on February 4, 2019. The participants were the author and UBS’ John Kowalik.

It should be added that this article is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities or other financial instruments. The information contained in this article has been assembled from sources believed to be reliable, but is not guaranteed by its author. Any (inadvertent) errors and omissions are the responsibility of Ms. Till alone.

›2 Printed in France, May 2019. Copyright› 2EDHEC 2019. The opinions expressed in this study are those of the authors and do not necessarily reflect those of EDHEC Business School. ABOUT THE AUTHOR ————————

Hilary Till is co-founder and principal of Premia Capital, a proprietary investment and research firm focused on the natural resources futures markets. At Premia, Till created a systematic investment process with elements including trade discovery, trade construction, strategy bucketing, dynamic correlation analysis, portfolio construction, risk management, event-risk analysis and macro portfolio hedging. In 2007, she co-edited the book Intelligent Commodity Investing with Premia colleague Joseph Eagleeye. In addition, Till is a principal of Premia Risk Consultancy, Inc., which provides advice on complex financial topics to institutional investment firms. Till presented her research on oil price formation to the Oil Industry and Markets Division of the International Energy Agency in March 2009. She also advises on portfolio management, fund governance and natural-resources investing as well as on derivatives hedging strategies and risk management policies. In 2003, Till was awarded a grant by the Foundation of Managed Derivatives Research to review prominent fund research for a peer-reviewed journal. [2] Till also serves on the North American advisory board of the London School of Economics; is a research associate at the EDHEC-Risk Institute; is a Fellow at the Arditti Center for Risk Management,DePaul University; and is a member of the steering committee for the Chicago chapter of the Professional Risk Managers' International Association. In 2011, she was named to the Federal Reserve Bank of Chicago’s Working Group on Financial Markets.

An EDHEC-Risk Working Paper — Weathering the Storm in Commodity Risk Premia Strategies — May 2019 ›3 A 2018 Financial Times article described how stocks based on value considerations and sells stocks commodity risk premia strategies had caused a “boom based on growth considerations would be taking on in trading volumes on exchanges” with estimates of business cycle risk that most investors would desire $60 to $80 billion eventually going into these types of to avoid since their jobs would also be at risk then strategies (Meyer, 2018). With “risk premia strategies[,] (Cochrane, 1999). investors systematically place bets based on so-called factors such as momentum, volatility and the pattern There is now a burgeoning body of academic and of prices for future delivery,” explained Meyer practitioner research on applying factor investing to (2018). commodities, along with attempting to identify the specific that may give rise to a strategy’s In this article, we describe risk premia strategies more backtested returns. broadly and note how commodity risk premia strategies are an extension of ideas that were originally from We will now consider how to weather the storm the equity markets. We will then cover a number of during the inevitable losses in commodity risk premia techniques which attempt to minimize the inevitable strategies. losses that can arise from such strategies. Lastly, we conclude with several hypotheses on why a number of commodity risk premia strategies have historically Fundamental Analysis earned high average returns. A modicum of fundamental knowledge on commodity markets is advisable when employing commodity risk premia strategies. In all commodity markets, the Introduction to Risk Premia Strategies and key fundamental variable is the storage or inventory Factor Investing situation. The existence of storage can act as a In risk premia strategies, an investor or speculator dampener on price volatility since it provides an takes on an exposure that other market participants additional lever with which to balance supply and would prefer to lay off and from which an investor demand. If there is too much of a commodity relative earns a return not conditioned on manager skill. to demand, it can be stored. In that case, one does These strategies involve the risk of loss and/or not need to rely solely on the adjustment of price to underperformance. The underlying idea is that some encourage the placement of the commodity. If too investors can achieve extra returns by in effect selling little of a commodity is produced, one can draw on insurance to other investors (Cochrane, 1999). One storage; price does not need to ration demand. does not classify these strategies as being due to market inefficiencies. But when inventories for a commodity become quite tight, the price can become “non-linear” since in Risk premia strategies can also be referred to as the absence of adequate inventories only price can factor investing. As noted by Hixon et al. (2018), balance supply and demand. One cannot draw from this type of investing “has become mainstream, but inventories that do not exist. In treatments of the most approaches still focus on equities.” Further, economics of price volatility, one typically sees that “these strategies are all derived from the same idea: at low levels of inventories, a commodity’s price can go long (or overweight) assets with high values become exponentially large at ever lower levels of in a particular metric and short (or underweight) inventory. assets with low values in the same metric,” explain Hixon et al. (2018). Researchers also attempt to Arguably, incorporating fundamental knowledge of the identify what particular risk is being taken on commodity markets can help in mitigating potential which allows structural returns for these strategies. losses in commodity risk premia strategies. Till (2018) So for example, an investor who systematically buys advocated this position in noting that an examination

›4 An EDHEC-Risk Working Paper — Weathering the Storm in Commodity Risk Premia Strategies — May 2019 of the prevailing natural gas inventory situation could decades of trading, one can see what the potential have helped OptionSellers.com avoid its catastrophic impact is and what trade constructions are robust to blow-up in November 2018. weather-related price spikes.

In crude oil, a further fundamental variable besides In summary, a grasp of commodity market fundamentals above-ground inventory is the level of excess spare should be included in the design of commodity risk capacity. Spare capacity is the volume of production premia strategies in order to mitigate potential that can be brought on within 30 days and sustained losses. for at least 90 days. OPEC spare capacity has historically provided an indicator of the world oil market's ability to respond to potential crises that Active Management of Risk Premia Strategies reduce oil supplies. There are a number of other decisions to incorporate in the design of commodity risk premia strategies. There are times when OPEC spare capacity is the most One must decide how much to leverage the strategy, important factor for driving oil prices. When above- how many reserves to set aside in the event of a ground inventory levels are sufficient, the cushion catastrophic event, and whether to give up any returns provided by OPEC spare capacity does not become by hedging out some of the strategy’s extreme . material. But at sufficiently low levels of inventory, These decisions all impact the ability of an investor to an examination of data over the last 20 years shows withstand a potential storm in returns in commodity that the amount of OPEC spare capacity becomes risk premia strategies. crucial (Till, 2015a). In the absence of being able to draw on inventories or exploit surplus capacity, price is the only lever that can balance supply-and-demand Tactical Allocation Based on Risk-Cheapness in such a scenario. Metrics One can also use statistical rich-cheapness analyses in With both natural gas and corn, being aware of the deciding which commodities to incorporate in a risk timing of potential adverse weather events is also premia strategy, as is done in tactical asset allocation. crucial, as noted in Till (2019). Natural gas positions can be strongly impacted by potential heat waves, In an International Monetary Fund working paper, hurricanes, and cold shocks, especially if the cold shocks Nozaki (2010) advised such an approach in order to occur during the end of winter when inventories are avoid crash risk when carrying out a currency carry drawn down. The advantage of being a commodity strategy. In a currency carry strategy, an investor trader, unlike a commercial market participant, is that takes “a short position in a currency with a low one doesn’t have to always have a position on. One interest rate and a long position in a currency with can decide which pitches to swing at. For certain a high interest rate,” as explained by Nozaki (2010). structural trades in the natural gas markets, one can The IMF researcher created a fundamental valuation choose to not include these trades during times of metric for foreign currencies (relative to the U.S. potentially extreme weather. dollar) based on (1) each country’s “commodity- based terms of trade” and (2) each country’s “relative The advantage of trading corn over natural gas is GDP per capita relative to its trading partners.” The that one has a much longer dataset with corn over author advocated a trading strategy of investing which to run risk-management studies as compared in the carry strategy unless the undervaluation or to natural gas, which only started trading in 1990. overvaluation of a foreign currency was beyond a July is a key time during corn’s growing season that threshold level. At that point, one would toggle into determines corn yields. Adverse weather then can owning a currency based on the fundamental metric. have a large impact on corn prices. But over many Nozaki (2010) found that this strategy offered “some

An EDHEC-Risk Working Paper — Weathering the Storm in Commodity Risk Premia Strategies — May 2019 ›5 insurance against crash risk without sacrificing a high need to diversify with financial assets. And one can risk-adjusted average return achieved by the carry … potentially further limit drawdowns by diversifying strategy.” across commodity factors that are implemented as long/short strategies.

How might this idea apply to a commodity Fernandez-Perez et al. (2017) discuss harvesting strategy? commodity styles by equally weighting them in a In commodities, inventories matter and with crude portfolio. The chosen styles had previously been oil, spare capacity matters. Specifically with crude oil, found to be associated with high average returns when spare capacity has been quite low, the market when one formed portfolios based on high and low is at risk to oil prices spiking higher, creating demand values of each style’s metric. The authors’ commodity destruction, followed by the price of oil subsequently styles included roll-yield, hedgers’ net short positions, crashing. By toggling out of crude oil during pinch- speculators’ net long positions, momentum, value, and point levels in spare capacity, the distribution of crude skewness, amongst others. oil returns has historically been positively skewed rather than negatively skewed (Till, 2015b). Their study was from 1992 to 2016. The annualized excess returns were about 8% with a of -17%. This drawdown figure is strikingly low, showing Long-Only Programs: Diversification with the potential of diversifying across commodity styles. Financial Assets For an investor who is solely in long-only commodity strategies, that investor is taking on the risk of Tolerance for Fluctuations in Returns debt-deflationary spirals. And if the commodity In weathering the storm in commodity strategies, an strategy is heavily weighted to crude oil, then the investor may find it a challenge to be able to tolerate investor is also at risk to the possibility of oil-market fluctuations in returns. Taleb (2001) explained why price-share wars. In both of these scenarios, only it is such a challenge for traders and investors to financial assets can diversify and dampen these risks. follow a disciplined investment process. He provides an example of a return-generating process that has In examining data since 1876, HSBC found that annual returns in excess of T-bills of 15% with an “[t]umbling oil prices … [have been] a bonanza for annualized volatility of 10%. At first glance, one would global stock markets, provided the chief cause has think it should be trivial to stay with a strategy with been a surge in crude supply rather than a collapse such superior risk and return characteristics. in economic demand,” wrote Evans-Pritchard (2014). But if oil prices are undergoing a dramatic decline But Taleb (2001) also notes that with such a return- because of “the forces of global recession,” this generating process, there would only be a 54% chance can overwhelm “the stimulus or ‘tax cut’ effect for of making money on any given day. If the investor felt consumers and non-oil companies of lower energy the pain of loss say 2.5 times more acutely than the costs,” summarized Evans-Pritchard (2014). Under joy of a gain, then it could be potentially exhausting that scenario, a Treasury hedge has been the most to carry out this superior investment strategy. effective hedge for petroleum complex holdings.

Behavioral Challenges for Quantitative Funds Long-Short Strategies Can Potentially Hedge Risk premia strategies are betas (specifically, alternative Out the Commodity Beta betas and definitely not alphas.) In practice, the Where long-short strategies are permissible, one can standalone strategies have experienced at best mid hedge out the commodity beta and therefore not -20% drawdowns.

›6 An EDHEC-Risk Working Paper — Weathering the Storm in Commodity Risk Premia Strategies — May 2019 According to Wiggins (2019), “owning quant funds is as due to the trading activity of non-profit seeking not easy,” which apparently was particularly the case participants such as central banks and corporate in 2018. The author noted that there are specific hedging programs.” behavioral challenges in holding a quant strategy, particularly when performance is poor. For example, Carry one can never have complete certainty “why a With the basis or carry factor, one invests in portfolios particular factor has delivered a premium … [and one] of commodities based on the commodity futures can never be sure as to whether it will continue to curve shape. Gorton et al. (2013) showed that work. … [V]alid factors can struggle for long spells when the front-month price of a futures contract and it is difficult … to decipher whether these are the is at a premium to the deferred contract (which result of a structural shift extinguishing the factor is known as backwardation), this is correlated to premium or a ‘temporary’ phenomenon.” when the commodity has relatively low inventories. When the front-month price is at a discount to the In addition, “[e]ven a strategy with a high deferred contract (which is known as contango), this [that invests] … in proven factors is prone to experience is correlated to when the commodity has relatively drawdowns that can be multiples of long-term high inventories. In the commodity carry strategy, expected volatility,” explained Wiggins (2019). The one overweights backwardated commodity futures author therefore recommended that “investors … contracts and underweights commodity futures need to be aware of the distinct behavioral challenges contracts that are in contango. According to Bakshi that arise from owning systematic strategies and be et al. (2019), this factor delivers low returns in periods prepared to manage them if they are to successfully when global equity volatility increases. invest in such strategies.” Negative Skewness Regarding another commodity factor, portfolios Economic Rationale for Returns sorted on overweighting negatively (or lowly skewed) Given the behavioral challenges that arise from commodities and underweighting positively (or more investing in quantitative strategies, investors need to highly) skewed commodities have also done well, be reasonably secure that a strategy has an economic indicating that one should include skewness as an rationale and therefore is not just an artifact of a lot alternative risk factor, as shown by Fernandez-Perez of backtesting. The more confidence that an investor et al. (2015). Perhaps one explanation for this effect has that a factor is economically grounded, the more is that there is a preference for “lottery-like payoffs” likely that investor should be able to stay with that (which depresses the returns of positively skewed investment during adverse times. commodities relative to commodities that have the opposite feature.) Some of the commodity factors that have been found to have high average returns and have a plausible Basis-Momentum economic story include momentum, basis or carry, Recently Boons and Prado (2019) proposed a “basis- negative skewness, and basis-momentum (Sakkas and momentum” factor. Basis-momentum is measured Tessaromatis, 2018). as the difference between momentum in first- and second-nearby futures contracts. The authors found Momentum that returns to portfolios sorted on high values of this Over many decades, momentum has worked across factor increased with aggregate commodity volatility. asset classes, including commodities. Hurst el al. (2012) The authors inferred that times of heightened noted that momentum’s long-term profitability may volatility would be when the market-clearing ability of be due to “long-standing behavioral biases exhibited speculators would become impaired and so speculators by investors, such as anchoring and herding, as well would have to at least partly resort to spread positions

An EDHEC-Risk Working Paper — Weathering the Storm in Commodity Risk Premia Strategies — May 2019 ›7 to manage risk taken on from commercial hedgers. During these times, speculators would have to be well-compensated to take on spread positions with the compensation needing to be even greater for taking on riskier outright positions.

The Drawdowns A key reason for bringing up the explanations for why various commodity strategies may be earning risk premia is that when these strategies have drawdowns in the order of -20% to -30%, it may be easier for investors to remain with these strategies if they understand their return rationale along with the risks that they are assuming.

Conclusion Meyer (2018) noted that inflows into commodity risk premia strategies have been even greater than those into commodity hedge funds. It remains to be seen how various newly discovered commodity risk factors will perform once documented, understood, and invested in. One advantage for commodity futures traders and researchers alike is that one can monitor the relative participation of commercials versus non-commercials through the U.S. Commodity Futures Trading Commission’s (CFTC’s) Commitments of Traders Reports. Why would these CFTC reports be useful? One can potentially use these reports to detect whether an imbalance of speculative capital emerges relative to commercial hedging needs, which could thereby have a dampening impact on future returns of commodity risk premia strategies over time.

›8 An EDHEC-Risk Working Paper — Weathering the Storm in Commodity Risk Premia Strategies — May 2019 References > Nozaki, M., 2010, “Do Currency Fundamentals > Bakshi, G., Gao, X. and A. Rossi, 2019, “Understanding Matter for Currency Speculators?”, IMF Working Paper, the Sources of Risk Underlying the Cross Section of February. Commodity Returns,” Management Science, Vol. 65, No. 2, February, pp. 619–641. > Sakkas, A. and N. Tessaromatis, 2018, “Factor- Based Commodity Investing,” EDHEC-Risk Institute > Boons, M. and M. Prado, 2019, “Basis-momentum,” Publication, January. Acessed via website: Journal of Finance, Vol. 74, No. 1, February, pp. 239-279. https://www.edhec.edu/en/publications/factor-based- commodity-investing on May 14, 2019. > Cochrane, J., 1999, “Portfolio Advice for a Multifactor World,” Economic Perspectives, a publication of the > Taleb, N., 2001, Fooled By Randomness, New York: Federal Reserve Bank of Chicago, Vol. 23, No. 3, August, Texere. pp. 59-78. > Till, H., 2015a, “When Has OPEC Spare Capacity > Evans-Pritchard, A., 2014, “Oil Drop is Big Boon for Mattered for Oil Prices?”, EDHEC-Risk Institute Global Stock Markets, If It Lasts,” The Telegraph (U.K.), Publication, November. Accessed via website: November 28. https://risk.edhec.edu/publications/when-has-opec- spare-capacity-mattered-oil-prices on May 14, 2019. > Fernandez-Perez, A., Frijns, B., Fuertes, A.-M. and J. Miffre, 2015, “Commodities as Lotteries: Skewness > Till, H., 2015b, “Structural Position-Taking in Crude Oil and the Returns of Commodity Futures,” EDHEC-Risk Futures Contracts,” EDHEC-Risk Institute Publication, Institute Publication, October. Accessed via website: November. Accessed via website: https://risk.edhec.edu/publications/commodities- https://risk.edhec.edu/sites/risk/files/edhec-working- lotteries-skewness-and-returns-commodity-futures paper-structural-position-taking-in-crude-oil-futures- on May 14, 2019. contracts-f_1460018184683.pdf on May 14, 2019.

> Fernandez-Perez, A., Fuertes, A.-M. and J. Miffre, > Till, H., 2018, “An Update on Weather Fear Premia 2017, “Harvesting Commodity Styles: An Integrated Trades,” EDHEC-Risk Institute Publication, December. Framework,” Auckland University of Technology (New Accessed via website: Zealand), Cass Business School (U.K.), and Audencia https://www.edhec.edu/en/publications/update- Business School (France) Working Paper, July 19. weather-fear-premia-trades on May 14, 2019.

> Gorton, G., Hayashi, F. and G. Rouwenhorst, 2013, > Till, H., 2019, “Weathering the Storm in Risk Premia “The Fundamentals of Commodity Futures Returns," Strategies in the Commodity Markets: A Case Study,” Review of Finance, the Journal of the European Finance Presentation at UBS’ Risk Premia Conference, New Association, Vol. 17, No. 1, January, pp. 35-105. York Stock Exchange, February 4.

> Hixon, S., Tao, H. and S. Wolfe, 2018, “Implementing > Wiggin, J., 2019, “Owning Quant Funds is Not Easy,” a Multi-Factor Commodity Strategy: A Practitioner’s BehavioralInvestment.com, January 23. [J.Wiggins is Approach,” Risk & Reward, a publication of Invesco, a fund manager at Aberdeen Standard Investments.] 4th Quarter, pp. 4-10. Accessed via website: https://behaviouralinvestment.com/2019/01/23/ > Hurst, B., Ooi, Y. and L. Pedersen, 2012, “A Century owning-quant-funds-is-not-easy/ on May 14, 2019. of Evidence of Trend-Following Investing,” AQR Capital Management, Fall.

> Meyer, G., 2018, “Commodities Trading Booms as New Strategy Emerges,” Financial Times, June 3.

An EDHEC-Risk Working Paper — Weathering the Storm in Commodity Risk Premia Strategies — May 2019 ›9 ———————— About EDHEC-Risk Institute ———————— About EDHEC-Risk Institute ————————

Founded in 1906, EDHEC is one of the foremost international business schools. Operating from campuses in Lille, Nice, Paris, London and Singapore, EDHEC is one of the top 15 European business schools. Accredited by the three main international academic organisations, EQUIS, AACSB, and Association of MBAs, EDHEC has for a number of years been pursuing a strategy of international excellence that led it to set up EDHEC-Risk Institute in 2001. This Institute boasts a team of permanent professors, engineers and support staff, and counts a large number of affiliate professors and research associates from the financial industry among its ranks.

The Need for Investment Solutions and Risk Management is justified as an industry only to the extent that it can demonstrate a capacity to add value through the design of dedicated and meaningful investor-centric investment solutions, as opposed to one-size-fits-all manager-centric investment products. After several decades of relative inertia, the much needed move towards investment solutions has been greatly facilitated by a true industrial revolution triggered by profound paradigm changes in terms of (1) mass production of cost- and risk-efficient smart factor indices; (2) mass customisation of liability-driven investing and goal-based investing strategies; and (3) mass distribution, with robo-advisor technologies. In parallel, the investment industry is strongly impacted by two other major external revolutions, namely the digital revolution and the environmental revolution.

In this fast-moving environment, EDHEC-Risk Institute positions itself as the leading academic think-tank in the area of investment solutions, which gives true significance to the investment management practice. Through our multi-faceted programme of research, outreach, education and industry partnership initiatives, our ambition is to support industry players, both asset owners and asset managers, in their efforts to transition towards a novel, welfare-improving, investment management paradigm.

EDHEC-Risk New Initiatives In addition to the EDHEC Alternative Indexes, which are used as performance benchmarks for risk analysis by investors in hedge funds, and the EDHEC-IEIF Monthly Commercial Property index, which tracks the performance of the French commercial property market through SCPIs, EDHEC-Risk has recently launched a series of new initiatives.

• The EDHEC-Princeton Retirement Goal-Based Investing Index Series, launched in May 2018, which represent asset allocation benchmarks for innovative mass-customised target-date solutions for individuals preparing for retirement;

• The EDHEC Bond Risk Premium Monitor, the purpose of which is to offer to investment and academic communities a tool to quantify and analyse the risk premium associated with Government bonds;

• The EDHEC-Risk Investment Solutions (Serious) Game, which is meant to facilitate engagement with graduate students or investment professionals enrolled on one of EDHEC-Risk’s various campus-based, blended or fully- digital educational programmes.

›11 An EDHEC-Risk Working Paper — Weathering the Storm in Commodity Risk Premia Strategies — May 2019 About EDHEC-Risk Institute ————————

Academic Excellence and Industry Relevance In an attempt to ensure that the research it carries out is truly applicable, EDHEC has implemented a dual validation system for the work of EDHEC-Risk. All research work must be part of a research programme, the relevance and goals of which have been validated from both an academic and a business viewpoint by the Institute's advisory board. This board is made up of internationally recognised researchers, the Institute's business partners, and representatives of major international institutional investors. Management of the research programmes respects a rigorous validation process, which guarantees the scientific quality and the operational usefulness of the programmes.

Seven research programmes have been conducted by the centre to date: • Investment Solutions in Institutional and Individual Money Management; • Premia in Investment Solutions; • Fixed-Income Risk Premia in Investment Solutions; • Alternative Risk Premia in Investment Solutions; • Multi-Asset Multi-Factor Investment Solutions; • Reporting and Regulation for Investment Solutions; • Technology, Big Data and Artificial Intelligence for Investment Solutions.

EDHEC-Risk Institute’s seven research programmes explore interrelated aspects of investment solutions to advance the frontiers of knowledge and foster industry innovation. They receive the support of a large number of financial companies. The results of the research programmes are disseminated through the EDHEC-Risk locations in the City of London (United Kingdom) and Nice, (France).

EDHEC-Risk has developed a close partnership with a small number of sponsors within the framework of research chairs or major research projects: • Management as a Source of Performance, in partnership with the French Association (Association Française de la Gestion financière – AFG); • ETF, Indexing and Smart Beta Investment Strategies, in partnership with Amundi; • Regulation and Institutional Investment, in partnership with AXA Investment Managers; • Optimising Bond Portfolios, in partnership with BDF Gestion; • Asset-Liability Management and Institutional Investment Management, in partnership with BNP Paribas Investment Partners; • New Frontiers in Risk Assessment and Performance Reporting, in partnership with CACEIS; • Exploring the Commodity Futures Risk Premium: Implications for Asset Allocation and Regulation, in partnership with CME Group; • Asset-Liability Management Techniques for Sovereign Wealth Fund Management, in partnership with Deutsche Bank;

An EDHEC-Risk Working Paper — Weathering the Storm in Commodity Risk Premia Strategies — May 2019 ›12 About EDHEC-Risk Institute ————————

• The Benefits of Volatility Derivatives in Equity Portfolio Management, in partnership with Eurex; • Innovations and Regulations in Investment Banking, in partnership with the French Banking Federation (FBF); • Dynamic Allocation Models and New Forms of Target-Date Funds for Private and Institutional Clients, in partnership with La Française AM; • Risk Allocation Solutions, in partnership with Lyxor Asset Management; • Infrastructure Equity Investment Management and Benchmarking, in partnership with Meridiam and Campbell Lutyens; • Risk Allocation Framework for Goal-Driven Investing Strategies, in partnership with Merrill Lynch Wealth Management; • Financial Engineering and Global Alternative Portfolios for Institutional Investors, in partnership with Morgan Stanley Investment Management; • Investment and Governance Characteristics of Infrastructure Debt Investments, in partnership with Natixis; • Advanced Investment Solutions for Liability Hedging for Inflation Risk, in partnership with Ontario Teachers’ Pension Plan; • Cross-Sectional and Time-Series Estimates of Risk Premia in Bond Markets, in partnership with PIMCO; • Active Allocation to Smart Factor Indices, in partnership with Rothschild & Cie; • Solvency II, in partnership with Russell Investments; • Advanced Modelling for Alternative Investments, in partnership with Société Générale Prime Services (Newedge); • Structured Equity Investment Strategies for Long-Term Asian Investors, in partnership with Société Générale Corporate & Investment Banking.

The philosophy of the Institute is to validate its work by publication in international academic journals, as well as to make it available to the sector through its position papers, published studies and global conferences.

To ensure the distribution of its research to the industry, EDHEC-Risk also provides professionals with access to its website, https://risk.edhec.edu, which is devoted to international risk and investment management research for the industry. The website is aimed at professionals who wish to benefit from EDHEC-Risk’s analysis and expertise in the area of investment solutions. Its quarterly newsletter is distributed to more than 150,000 readers.

›13 An EDHEC-Risk Working Paper — Weathering the Storm in Commodity Risk Premia Strategies — May 2019 About EDHEC-Risk Institute ————————

Research for Business EDHEC-Risk Institute also has highly significant executive education activities for professionals, in partnership with prestigious academic partners. EDHEC-Risk's executive education programmes help investment professionals upgrade their skills with advanced asset allocation and risk management training across traditional and alternative classes.

In 2012, EDHEC-Risk Institute signed two strategic partnership agreements. The first was with the Operations Research and Financial Engineering department of Princeton University to set up a joint research programme in the area of investment solutions for institutions and individuals. The second was with Yale School of Management to set up joint certified executive training courses in North America and Europe in the area of risk and investment management.

As part of its policy of transferring know-how to the industry, in 2013 EDHEC-Risk Institute also set up ERI Scientific Beta, which is an original initiative that aims to favour the adoption of the latest advances in smart beta design and implementation by the whole investment industry. Its academic origin provides the foundation for its strategy: offer, in the best economic conditions possible, the smart beta solutions that are most proven scientifically with full transparency in both the methods and the associated risks.

EDHEC-Risk Institute also contributed to the 2016 launch of EDHEC Infrastructure Institute (EDHECinfra), a spin-off dedicated to benchmarking private infrastructure investments. EDHECinfra was created to address the profound knowledge gap faced by infrastructure investors by collecting and standardising private investment and cash flow data and running state-of-the-art asset pricing and risk models to create the performance benchmarks that are needed for asset allocation, prudential regulation and the design of infrastructure investment solutions.

An EDHEC-Risk Working Paper — Weathering the Storm in Commodity Risk Premia Strategies — May 2019 ›14 ———————— EDHEC-Risk Institute Publications and Position Papers (2016-2019) ———————— EDHEC-Risk Institute Publications and Position Papers (2016-2019) ————————

2019 • Maeso, J.M., Martellini, L. and R. Rebonato. Cross-Sectional and Time-Series Momentum in US Sovereign Bond Market (May). • Maeso, J.M., Martellini, L. and R. Rebonato. Defining and Expoiting Value in Bonds (May). • Maeso, J.M., Martellini, L. and R. Rebonato. Factor Investing in Sovereign Bond Markets - Time-Series Perspective (May).

2018 • Goltz, F. and V. Le Sourd. The EDHEC European ETF and Smart Beta and Factor Investing Survey 2018 (August). • Mantilla-Garcia, D. Maximising the Volatility Return: A Risk-Based Strategy for Homogeneous Groups of Assets (June). • Giron, K., L. Martellini, V. Milhau, J. Mulvey and A. Suri. Applying Goal-Based Investing Principles to the Retirement Problem (May). • Martellini, L. and V. Milhau. Smart Beta and Beyond: Maximising the Benefits of Factor Investing (February).

2017 • Amenc, N., F. Goltz, V. Le Sourd. EDHEC Survey on Equity Factor Investing (November). • Amenc, N., F. Goltz, V. Le Sourd. The EDHEC European ETF and Smart Beta Survey 2016 (May). • Maeso, J.M., Martellini, L. Maximising an Equity Portfolio Excess Growth Rate: A New Form of Smart Beta Strategy? (November). • Martellini, L. and V. Milhau. Mass Customisation versus Mass Production in Retirement Investment Management. Addressing a “Tough Engineering Problem“ (May). • Esakia, M., F. Goltz, S. Sivasubramanian and J. Ulahel. Smart Beta Replication Costs (February). • Maeso, J.M., Martellini, L. Measuring Volatility Pumping Benefits in Equity Markets (February).

2016 • Amenc, N., F. Goltz, V. Le Sourd. Investor Perceptions about Smart Beta ETFs (August). • Giron, K., L. Martellini and V. Milhau Multi-Dimensional Risk and Performance Analysis for Equity Portfolios (July). • Maeso, J.M., L. Martellini. Factor Investing and Risk Allocation. From Traditional to Alternative Risk Premia Harvesting (June). • Amenc, N., F. Goltz, V. Le Sourd, A. Lodh and S. Sivasubramanian. The EDHEC European ETF Survey 2015 (February). • Martellini, L. Mass Customisation versus Mass Production in Investment Management (January).

›16 An EDHEC-Risk Working Paper — Weathering the Storm in Commodity Risk Premia Strategies — May 2019 For more information, please contact: Maud Gauchon on +33 (0)4 93 18 78 87 or by e-mail to: [email protected]

EDHEC-Risk Institute 393 promenade des Anglais BP 3116 - 06202 Nice Cedex 3 France Tel. +33 (0)4 93 18 78 87

EDHEC Risk Institute—Europe 10 Fleet Place, Ludgate London EC4M 7RB United Kingdom Tel: + 44 207 332 5600

risk.edhec.edu