What’s happened and why?Commodity prices – the value of raw materials – have suffered most in recent years. The global financial crisis hit demand and prices for nearly all sorts of commodities, such as oil, copper and aluminium, fell sharply. If you had invested £100 in commodities during the worst spell for the sector – between 2011 and 2015 – it would have shrunk to £49. This represents a compound annual growth rate (CAGR) of -13.5%. CAGR smooths out the progress of your investment over a period of time, providing a clearer picture of the annual return.
Commodities made a comeback in 2016 largely due to huge infrastructure building proposals by governments in the US and China. But even with the 11% recovery in that year, the £100 you invested in 2011 would still only be worth £54 by the end of 2016. Equities on the other hand have enjoyed a relatively prosperous period. Low interest rates and central banks’ unrelenting support of financial markets have provided fertile ground on which stock markets have flourished.