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What kind of long term returns are possible in broad commodity futures?

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well it depends as always.

one major thing is whether you are going to manage the commodity futures.

an explicit implication of the study is that low inventory portfolios (i.e. portfolios of commodities that have low recent inventory figures) outperform high inventory portfolios (by 8.06% w/ a tstat of 3.19...so marginally significant but large estimate).

simply taking long positions in futures will likely reduce the highest returns you could generate since the low inventory portfolio would then be mixed together with exposure to periods of time where many of the commodities in the mix are experiencing strong periods of good supply (high inventory).

further, the real time construction of these portfolios requires good real time data without a lag. in reality, that isn't entirely possible. so i still think that commodity futures can deliver positive returns, though nowhere near as high as other asset classes. for my portfolio construction tests i typically assign commodities something like a .10 or .15 sharpe ratio (.15 is the most generous i'd think about) with about a 20% or so volatility. i'd reduce the volatility if the commodity futures exposures were deleveraged.

one interesting implication is that while "returns from backwardation" are spurious on the face of it (b/c the "hedging" theory seems to simply be a proxy), the returns generated from ETFs or CCFs that invest most highly in steeply backwardated futures curves are likely to be higher than those that simply invest in a broad basket of commodities.

the reason is obviously that the basis for those ETFs is on average higher, and thus inventories more likely to be strained than in a broad basket so those managers, unwittingly, are delivering a kind of "low inventory" portfolio.

overall, i don't know the simple # that you could generate, but i don't think it is near other asset classes.

Barron