CFA Level I · CFA Level I Exam · Natural Resources
Which of the following is the most likely reason that investors include direct exposure to natural resources, such as commodities, in a diversified portfolio?
Investors most likely hold natural resources for inflation protection and diversification, since commodity returns often respond to rising prices and show low correlation with equities and bonds. They do not provide guaranteed coupon income and are not perfectly correlated with stock markets.
- ANatural resources provide guaranteed income through fixed coupons
- BNatural resources can offer inflation hedging and diversification from equity and bond returnsCorrect
- CNatural resource prices are perfectly correlated with equity markets
Explanation
Commodity prices often rise with inflation and tend to have low correlation with traditional assets, which supports diversification. They pay no fixed coupons and are not perfectly correlated with equities.
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