How OMERS invests your pension in commodities
By Garrett McNally, Analyst, Global Multi-Asset Strategies
July 24, 2025
In today's volatile economic landscape, where geopolitical tensions, supply chain disruptions, and inflationary pressures create unprecedented market uncertainty, the need for portfolio diversification has never been more critical.
Traditional asset classes alone, such as stocks and bonds, may not provide sufficient protection against these rapidly shifting dynamics. As central banks navigate complex monetary policies and global events continue to impact market stability, institutional investors are increasingly turning to alternative assets to build resilience.
As fundamental building blocks of the global economy, commodities offer a unique opportunity to hedge against inflation, reduce portfolio correlation and capture value from the very materials that drive economic activity.
For pension funds like OMERS, this isn't just about optimization – it's about ensuring stable, reliable returns for members.
What are commodity markets?
Commodity markets are financial markets where raw materials or base agricultural products, such as copper, coffee and wheat, are traded. These markets allow investors to buy and sell commodities, which are considered the building blocks of the global economy.
Commodities are essential to produce goods and services, and various factors, including supply and demand, global politics and weather conditions influence their prices.
Why do we invest in commodities?
Investors turn to commodities for several reasons:
Diversification: Commodities offer a way to diversify investment portfolios beyond traditional assets, like stocks and bonds.
Inflation Hedge: Some commodities, including copper and gold, are generally thought to perform well during periods of inflation and provide a safeguard against rising consumer prices.
Speculation: Investors can profit from rapidly changing prices in commodity markets where they have a particular view on an event, supply, demand or any other factor.
How do we get exposure to commodities?
There are several methods for investing in commodities. Let’s investigate two commonly used approaches: futures contracts and Exchange-Traded Funds (ETFs).
What is a futures contract?
A futures contract is a standardized agreement to buy or sell a specific commodity at a predetermined price on a future date. Futures contracts allow investors to speculate on the future price movements of commodities, including aluminum, soybeans and live cattle, without owning the physical product.
What is an ETF?
ETFs are investment funds that attempt to track the price of a particular commodity or a basket of commodities. These ETFs are traded on stock exchanges and provide exposure to commodity prices without the need for direct ownership. For regular investors, commodity ETFs offer a convenient way to gain exposure to commodities.
Why do we prefer futures to ETFs?
Institutional investors prefer direct investment in commodity futures contracts to mitigate the limitations associated with ETFs. Direct investment offers several advantages:
Custom approach: By holding and choosing our own contracts, OMERS can achieve precise exposure to current, future or a blend of prices. The components of an ETF are chosen by the fund provider or set to follow a benchmark, offering less flexibility.
Active decisions: The prices of futures contracts fluctuate based on various factors, including weather, time of year and global politics. This can result in "roll" costs, where funds need to sell expiring futures contracts and buy new ones. Managing contracts allows for active trading approaches, such as deviating from a benchmark or mitigating roll costs by trading early.
Cost Efficiency: Direct investment eliminates the management fees associated with ETFs. While transaction fees still apply, they become a fraction of the cost at scale.
What strategies do we use?
OMERS invests in commodities across the following strategies:
Strategic: Using custom signals on data like supply, demand and trade flows, OMERS identifies which commodities we have conviction in. Considering the strength of these views and any associated risks, we utilize our weighting framework to allocate to the commodities.
Tactical: Leveraging the methodology above, our tactical strategy uses a similar process but is now allowed to sell commodity futures contracts. If we believe prices are going to come down, we can profit from this as well.
Enhanced benchmark: Like the S&P 500 serves as a proxy for the US stock market, there are benchmarks for commodity markets as well. Instead of holding the commodity benchmark fund, we own individual commodity futures contracts for oil, copper, soybeans and everything else within the commodity benchmark. This allows us to choose alternate futures contract dates or trade on a different schedule than the rigid benchmark.
Commodity equities: While not yet discussed, the stocks of companies that primarily deal in the direct production of commodities are another way to invest in commodities. However, these stocks are less reactive to commodity prices than futures contracts, and as a result, they can miss out on potential opportunities. We utilize our equity investing techniques to look for attractive commodity companies, eliminating the frequent and often costly trading expenses.
So, what does it all mean?
Investments in commodity markets are an effective tool in any portfolio. They provide diversification to a traditional portfolio, making it more resilient to rapidly evolving and unpredictable financial markets.
By employing a variety of strategies in commodities, OMERS is further enhancing this diversification by capturing multiple different sources of potential returns.
Ultimately, OMERS decision to invest in commodities reflects our dedication to building a resilient and diversified portfolio that drives stable and reliable income for our members.