According to its enthusiastic proponents, diversification provides the only free lunch in investing, promising to lower the volatility of a portfolio without necessarily lowering returns. For the first half of 2008, it seemed as though adding commodities to a portfolio offered not just the free lunch but extra helpings of pudding as well, as oil, grain and industrial metals all soared. Since then, however, many commodity indices have given up most of those gains and some investors are getting cold feet. Eric Kolts, who runs the commodity indices business at Standard & Poors, which includes the most widely followed benchmark in the sector, the S&P GSCI index, estimates that $50bn (£29.5bn, €36.7bn) has flowed out of commodity indices this year, reducing the total asset pool from $200bn to $150bn. This estimate seems to reveal...
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