Investors seem to be increasing their exposure to commodities both out of a desire for diversification and also to hedge against inflation.
The PowerShares DB Commodity Index Tracking Fund (DBC) raised $1 billion in net new assets during 2012 and another $200 million in January of 2013.
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Inflation fears are the primary reason as the Fed’s monetary stimulus continues to add potential inflationary pressures down the road and because of rising prices in agricultural product during 2012.
From a diversification standpoint, commodities have been under-allocated for some time.
Investors also may be hedging against currency risk as many countries begin to devalue their currencies, led by Japan.
However, inflation risk and diversification seem to be the primary drivers