Rob Arnott: "The Fiduciary Time Line"

The definition of a fiduciary sure has changed since I took my CFA exams in the 1980s.

Editor Rob Arnott's article, "The Fiduciary Time Line: Implications for Asset Allocation," in the March/April issue of the Financial Analysts Journal suggests that fiduciaries embrace:

• A willingness to stray from conventional stock and bond investments
• A careful and prudent quest for alpha
• Disciplined management of the asset mix
• Leverage

His perspective on commodities also interested me: "Commodities, for instance, are a high risk asset class when viewed in isolation, but the negligible correlation with a 60/40 equity/bond portfolio represents a powerful opportunity for diversification and portfolio risk reduction.

In the same issue of the Financial Analysts Journal, Gary Gorton and K. Geert Rouwenhorst conclude in "Facts & Fantasies about Commodity Futures" that "Although the risk premium on commodity futures is essentially the same as that on equities for the study period [of June 1959-Dec. 2004], commodity futures are negatively correlated with equity returns and bond returns. The negative correlation is the result, primarily, of commodity futures' different behavior over a business cycle. Commodity futures are positively correlated with inflation, unexpected inflation, and changes in expected inflation."