Alex Shahidi: Commodity Producers, Inflation & the RPAR/UPAR Case | Lead-Lag Live

Alex Shahidi, Managing Principal and Co-CIO at Evoke Advisors and co-portfolio manager of the RPAR Risk Parity ETF and UPAR Ultra Risk Parity ETF, returns to Lead-Lag Live for the next single-topic risk-parity conversation — this one focused on commodity producers as the inflation-hedging equity sleeve inside a modern balanced portfolio.

Alex makes the structural case for owning commodity producer equities rather than commodity futures — the tax efficiency, the equity risk premium layered on top of the commodity exposure, and the 50+ year track record of outperforming global equities by roughly 2% a year. He walks through how RPAR and UPAR construct the sleeve using the broad Morningstar Global Upstream Natural Resources Net Return Index (roughly a third energy, a third industrial and precious metals, a third agriculture), why diversification within the sleeve matters more than picking a single subsector, and why the diversification benefit shows up most when it's needed most — 2022 (equities down 18%, producers up 15%), Q1 2026 (equities down 3%, producers up 20%), and the 1970s (13%+ annualized for a full decade of stagflation).

He also gets candid about the behavioral difficulty of holding this sleeve as a standalone position — the 20-30% higher volatility versus global equities, the extended stretches where it deviates significantly from the broader market, and why rebalancing across the risk-parity buckets is what actually captures the long-run edge. The conversation closes with the practical case for RPAR versus a traditional 60/40: what inflation looks like when you zoom out over 100 years, why "low and stable" is the abnormal regime rather than the normal one, and where inflation-linked bonds fit alongside the commodity producer sleeve.

Topics covered:

(00:00) Opening — another Lead-Lag Live single-topic risk-parity conversation with Alex Shahidi

(00:30) Alex introduces Evoke Advisors, RPAR and UPAR, and the risk-parity framework

(02:18) Why commodity producer equities instead of commodity futures — tax efficiency and the equity risk premium

(04:13) Devil's advocate: are gold miners and other producers actually equities in disguise?

(05:09) How the broad producer index is constructed — energy, metals, agriculture, and why diversification within the sleeve matters

(06:07) Contango, backwardation, and why the futures path complicates the futures-based approach

(07:27) Historical case study — 2022 (equities -18%, producers +15%) and Q1 2026 (equities -3%, producers +20%)

(08:50) The 1970s parallel — 13%+ annualized during a decade of stagflation

(10:10) Why correlation is a byproduct — divergence shows up when you need it most

(12:05) The 55-year track record — 2% annualized outperformance vs global equities, liquid and tax efficient

(13:32) Currency exposure and dollar sensitivity in the producer sleeve

(14:27) The behavioral challenge — 20-30% more volatile than equities and the discipline required to hold it

(17:40) Rebalancing as programmatic mean reversion — why trimming winners matters over full cycles

(19:37) Making the case for RPAR versus a traditional 60/40 — the inflation-hedge gap

(20:36) Zooming out — 100 years of inflation history and why "low and stable" is the abnormal regime

(21:31) Where inflation-linked bonds fit alongside the producer sleeve in a full risk-parity framework

About Evoke Advisors: Evoke Advisors is a large, independent registered investment advisor headquartered in Los Angeles, co-founded by Alex Shahidi. The firm co-portfolio-manages the RPAR Risk Parity ETF and the UPAR Ultra Risk Parity ETF, both built on the principle that a balanced portfolio should diversify across economic environments — not just across asset classes.

Where to find Alex and Evoke:

• Website: evokeadvisors.com
• RPAR + UPAR ETFs: rparetf.com

The Lead-Lag Report: leadlagreport.com

Sponsored by Evoke Advisors: The RPAR Risk Parity ETF (RPAR) and UPAR Ultra Risk Parity ETF (UPAR) offer diversified, all-weather exposure across global equities, Treasuries, TIPS, gold, and commodity producers — engineered to balance risk across four economic environments. Learn more at rparetf.com.

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Important disclosures: This podcast is for informational and educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Investors should carefully consider the investment objectives, risks, charges, and expenses of any fund before investing. Past performance is not indicative of future results. RPAR and UPAR are subject to market risk, interest rate risk, commodity risk, and other risks disclosed in the fund prospectus. Investing in commodity-related equities involves the risks of the underlying commodities markets, including significant price volatility. Please read the prospectus carefully before investing.

Transcript

Welcome And Risk Parity Basics

SPEAKER_01 0:01

All right, everybody. As always, give me a second. I really got to have a better opener than that. I'm getting this stream set up here for another edition of Lead Lag Live with uh my friend Mr. Alex Shahidi of the RPAR and UPAR ETFs, uh risk parity. Uh last time we did this, we talked about gold role uh in a portfolio and in a risk parity framework. Today we're going to talk about the commodity producers. Again, we're doing this to break down the components of what goes into risk parity. But before we do that, like we did last time, Alex, uh you should introduce yourself and talk about what risk parity is so that we can set the stage for this code.

SPEAKER_00 0:34

Uh sure. Uh Alex Shahidi, co-CIO of the Vulk Advisors, large RA in Los Angeles. Um, we launched uh two ETFs, RPAR and UPAR, ultra-risk parity and uh risk parity, uh several years ago. And the idea is, uh, and what risk parity is, is it's a balanced allocation. It's investing across a range of public markets and think of it as a passive allocation, think of it as a neutral uh portfolio that is effectively trying to uh balance across different economic environments and most significantly growth in inflation environments, because that's uh our understanding of what typically drives markets over time. And it's more specifically uh what happens to growth versus what was expected, what happens to inflation versus what was expected, and how those expectations shift. So it's really the surprises that matter. And you can diversify that risk by owning assets that do well in different growth than in inflation environments. And one of the hot topics today is inflation. You know, inflation's been elevated for uh over five years now, uh, believe it or not. And uh so you've had upside surprises to inflation um since uh 2020, 2021. And uh assets that are biased to do better in that environment have generally outperformed. So I view that as a just an important component of what a balanced allocation is.

Inflation Surprises And Portfolio Design

SPEAKER_01 1:58

Okay, now let's focus on this inflation uh part of the discussion. The um when I think about inflation, or when a lot of people think about inflation, they think about uh stocks as a way to, in quotes, play it. Uh, but then of course, commodities as the way to play it. In a more traditional risk parity framework, uh, it's investing in commodities directly. With what you're doing with our par, you're not necessarily doing that with that component of the portfolio. So talk through the whole idea of choosing commodity equity plays as opposed to commodities themselves.

SPEAKER_00 2:29

Yeah. So I think if you want exposure to inflation hedges, one big part of that is owning, having exposure to commodities. Uh, and you can think of it as the commodity prices. That's a component of inflation. Um, so I think there's two main ways to do that. One is you can own commodity futures where you have access and exposure to the price of commodities. Um, and and the challenge with that is it's relatively tax inefficient. These are futures. Um, so it's basically all your return is taxed every year. And the historical return hasn't been very high because the risk premium is relatively small. So the challenge with owning, getting exposure to commodities through futures is less tax efficient, very volatile, obviously, and the return hasn't been very high historically. Uh so the other way to do it, uh, which is the way we've opted, is to own commodity producer stocks. So the company's pulling the commodities out of the ground. And I think you want to try to get invest in the companies that are closest to the commodity price, because their their returns will be closest to the fluctuations of the commodity price. Uh so these are like upstream natural resources. So think of it as uh energy, you know, uh oil and gas, uh miners uh of industrial metals, priceless metals, and then also agriculture. Um and and the the difference between commodity futures and these companies, the stocks, is that the historical return of those stocks has been much higher than people realize. It's a couple percent above global equities for 50 plus years. Um, and it's a diversifying return. Uh, it's also volatile like commodities, but uh and it's also more tax efficient because these are companies. So we think of that as just a more efficient way to get that commodity exposure.

Producer Stocks Versus Commodity Futures

unknown 4:15

All right.

SPEAKER_01 4:15

So I'm gonna play devil's advocate for for a bit here. The um one of the the criticisms when it comes to gold miners, for example, is that uh it tends to well, no, I wouldn't say tends to, there are times when it doesn't correlate to gold at all. And part of that is because when you do a regression, it turns out that the price of oil is a big driver of those stock uh performance uh histories. Why? Because it's very energy intensive to to pull gold out of different uh parts of the world, right? So um is there is is there any thought or distinction in terms of the types of commodity producing equities and their sensitivity to things outside of that commodity?

SPEAKER_00 4:53

Uh I mean, we just think of it as gets just get the index exposure. Um so if you if you diversify across energy, uh miners, all sorts of miners, uh uh in our probably actually exclude gold because we have direct exposure to gold, but just a commodity index would include gold, but it'd be a relatively small piece, and then agriculture. And like the broad index is roughly a third, a third, a third across those, those three. So by and large, those three components don't necessarily zig and zag together. There may be times that they do, um, but it's a pretty diverse mix of uh commodity uh producer equities. Uh, and then that that basket of all those things is pretty diversifying to the rest of that equity market. So I think of equities as there's a subset of it, which is commodity producers, which is pretty different from all the other equities. And so I think of it as just that's the piece that I'd want to overweights relative to the other equities because uh of its diversifying characteristics.

SPEAKER_01 5:56

Now you mentioned the agriculture side. I know it's a relatively smaller percentage, but um, the issue, of course, with uh any investment in agriculture and several other commodities is the role, right? It's a futures-based way of approaching things and futures expire, you have to roll, and there's contango and vaccination and things like that. Does that um you think it suggests that historically that complicates, you know, the term profile?

SPEAKER_00 6:18

No, that's one of the reasons that the equities are beneficial because uh, you know, and maybe there's some hedging with some of these companies, but it's a broad index exposure. So, so you're kind of you're neutralizing a lot of those other concerns with futures where where you have to look at the the shape of the curve. Uh, these are just the companies that are that are uh producing these uh commodities, pulling them out of the ground uh or are producing them. And your return is going to be by and large influenced by the price of those commodities when you look at it in aggregate. And that index in aggregate is pretty diversifying. And we can get into specific examples of how that's worked uh over time.

SPEAKER_01 6:58

Yeah, let's get into that, but but also there's there's the other part, of course, which is that um there might be dividends attached to it, you know, attached to these companies. And presumably that uh makes the longer-term return profile obviously better than just going to roughly for the commodity itself.

SPEAKER_00 7:11

Yeah. And then also if you think about what you get with with commodity futures, is you just basically get the change in the price over time. With commodity producer equities, you get some influence on the on the change in the price, but you also get the equity risk premium. And it's in some ways, it's it's like a cheaper way to leverage a little bit, where you get exposure to two things the commodity price plus the risk premium that comes inherent with owning equities.

SPEAKER_01 7:39

All right, let's go through some examples. 2022,

Real-World Performance In Inflation Shocks

SPEAKER_01 7:41

obviously being the big one that most people would probably look towards. I mean, how did the commodity producing section of a risk parity portfolio perform then? And wasn't it enough to counter some of the other hemorrhage from that year?

SPEAKER_00 7:53

Yeah. So 22 is a perfect example. So in that year, global equities were down 18%. The commodity producer uh stocks were up 15%. Um, and and if you go back to what happened at that time, inflation, particularly uh commodity price inflation, was a big concern. And so that that was a very good offset. It was almost, it was almost the exact opposite return, minus 18 versus plus 15. We saw the same thing, by the way, in the first quarter of this year in 2026. Uh equities were down about 3%. Uh, and this happened after the oil shock, and commodity producer stocks were up 20%. Uh, and by the way, it's been the opposite since then, where equities, global equities have rallied and commodities uh producers have been negative. So, so think of it as attractive returns long term. And when you really need the diversification the most, you've seen that differentiation in returns. And by the way, the same thing in the 1970s, where global equities underperformed cash, as inflation was a problem not for a quarter or a year, but for a decade. And commodity producer stocks, you know, earned over 13% a year during that time.

SPEAKER_01 8:58

Okay. So um you mentioned you're getting index broad exposure. Um, talk us through how you even select which index to go with. Because not all indices are created, well, I think you're using the Morningstar Global Upstream Natural Resources Index. Uh, it could be awful. Yeah. Yeah. But yeah, why that versus others?

SPEAKER_00 9:14

Yeah, I just it always goes back to diversification. That's one thing you'll hear from me over and over again in all different at you know, all different dimensions. So within this, especially with commodities, you can get a wide range of returns across these commodities. They're actually relatively diversifying to one another. So that index is roughly a third, a third, a third. Third energy, third miners, third agriculture. So it's pretty broad based. A lot of the commodity indices are heavy in energy, um, which will tilt the results. Um, I'm I'm just looking for broad diversification. That's that's why we opted for that one.

SPEAKER_01 9:52

Okay. Uh talk to me about examples historically where the uh commodity equity equivalents uh performed maybe worse than the actual commodities they're they're trying to get exposure to from an underlying business operations perspective, times where there are disconnects.

SPEAKER_00 10:06

Yeah, I mean that that happens all the time. So uh so I can't think of a specific example, but you're gonna get divergence. So if you think about if you're trying to build a diversified portfolio and think of it as you have two choices, you have just commodity futures or you have the commodity producer stocks. The commodity futures are probably more diversifying. The the correlation of that index would probably be lower than the commodity producer index because there's uh there's some equity risk in there in the commodity stocks. But over time, the trade-off is you get a higher, you've had a higher return. Uh, and then the diversification has tended to work when you really needed it the most. So it's less about the correlation and more about when you get those big divergences, like 22 uh that I described the first quarter of this year in the 1970s. So think of it as there's some trade-off. You give up a little bit of diversification benefit, but over time I would expect a higher return. And to give you an example, that the commodity producer stock index since 1970 has outperformed global equities by over 2% a year. So that's a pretty significant uh difference. And then, you know, many people think of diversification as good returns come from global stocks and all the other things lower your returns, but they improve your risk adjusted returns and they uh reduce your risk. This one can potentially increase your return because it's had a higher return than global equities for 50 plus years and improve your diversification. So I view that as a pretty, in some ways, it's kind of like a hidden diversifier. Um, many people don't think about this piece, you know. And if I remove the name and I said, hey, there's an asset class that's outperformed global equities by 2% a year for 50 plus years, it's liquid, it's relatively tax efficient, and it's diversifying and it's an inflation hedge. That that's you would think that would be a relatively large allocation for most investors, just given those characteristics. And by the way, institutional investors tend to own more of it than um uh retail investors. So I think of it as, especially in a time like this, and we've had a few cases recently, 22 and first quarter, as recently as first quarter of this year, where you've seen the diversification benefits. I'm surprised it's not more widely uh accepted and included in portfolios.

SPEAKER_01 12:21

Is that uh commodity index um as a percentage in terms of global exposure, does it have less uh US exposure than the equity bucket? I would assume so.

SPEAKER_00 12:32

Uh so I think that index is it's something like 55 or 60 percent non-US of that index. Uh so it's it's you know it's relatively global. And what's interesting is of the global index, commodity is a relatively small percentage. Uh if you go back to the 1970s, it was a relatively large percentage, particularly near the end of the decade, as those stocks significantly outperform the rest of the market. Today, uh you're coming off a decade in the 2010s when commodity stocks didn't do that well. They were up like 3% a year. Every other decade since 1970, they've earned at least 13% a year. It's pretty phenomenal. You know, in the last 50 years, the 70s, 13% a year, the 80s, 14% a year, the 90s, 13%, the 2000s, 15%, the 2010s was only 3%, and then this decade so far, it's 13%. It's actually a fairly remarkable consistency. Um, and it's it's just surprising. Now, that there are negatives, which I'm happy to share if if that would be helpful.

SPEAKER_01 13:39

Yeah, and and and and maybe some of that is um I am saying currency movements tend to wash out over time, but uh, presumably there's a currency component, obviously, to the return pattern.

SPEAKER_00 13:48

Yeah, I mean it's let's say a little bit more than half known US. So so it's not it's not overly exposed globally. Um so you do get, you know, if the dollar strengthens, it helps a little less than half the portfolio. If the dollar weakens, a little more than half the portfolio benefits. Um, and then you have the you know countervailing forces of the commodity prices.

SPEAKER_01 14:10

Yeah, that makes sense. Um what are we missing when we when we think about the commodity uh equity producers?

The Hidden Cost Is Behavior

SPEAKER_01 14:16

It's like I feel I find that people that are investing in commodity equities can be really passionate about these stocks. They're not looking at it from a you know the role in a portfolio, they're looking at it from a just pure investment opportunity perspective. Um is there anything that that people are missing when they think about that specific part of the hybrid between commodities and equities?

SPEAKER_00 14:35

Yeah, I so the main thing is these are it's a difficult thing to own over time. And the reason I say that is because it has two basic characteristics that when you put them together, just make it a very difficult hold through volatile periods. One is it's very volatile, so it's maybe 20 to 30 percent more volatile than equities. And we know equities are volatile, so so you upsize that a little bit in terms of volatility. So that's that can be uncomfortable. And number two, it often deviates from global equities. And and I mentioned some of the positive deviations where it went up when global equities went down, but this but the opposite can occur. So if you have something that has these two characteristics, very volatile, more volatile than equities, and can deviate significantly from equities, which is what makes it diversifying, by the way, but it goes both ways. If it, if you go through a stretch where it's volatile and it's to the opposite side of equities, and as we know, most people use equities as a reference point to judge success or failure of any strategy, then when you go through those stretches, it can it can be really hard to hold through those. And obviously, you need to do that in order to benefit from reversing. So I think that's the big risk, is from a characteristic standpoint, I think it's very attractive uh in terms of a diversifier and potentially enhancing returns. But from a practical standpoint and from a behavioral standpoint, it's difficult to hold through time. So I think you have to factor that in in terms of do you own it as part of your portfolio? I think if you have a longer-term view, it's easier to hold. If you uh have more buy-in in terms of its uh positive attributes and its complementary uh factors in building a diversified portfolio, then you can probably hold it longer. But if you're looking at it more as a trade, it's gonna be hard to hold because you'll probably sell it when it's down.

SPEAKER_01 16:29

I don't know if you have to know this off the top of your head, but historically, um, how big have those divergences been in performance between commodity equity producing equity versus broader equi, right? I mean, you're rebalancing quarterly, but how much do they do they differ, those two buckets?

SPEAKER_00 16:45

Um, well, I mean, I just gave you an example. In 22, the difference was 33%, minus 18 versus plus 15. Uh, in first quarter of this year, that's just three months, the difference was 23%, minus three versus plus 20%. So, and then since the first quarter, the the difference is uh almost the opposite of that. So, so it they can diverge pretty significantly. If you look at correlation over time, it's it's relatively high, but but you know, shorter periods, you can get significant divergence. And usually that divergence occurs when you have big moves in commodity prices, um, which is which can cut both ways, right? When you get a big move up, then they probably outperform. When you get a big move down, they probably underperform, which is what we've seen this year, both sides of that. Um, and again, that's the whole point of it. That's the diversifying aspect. But that can make it difficult to hold on to over time.

SPEAKER_01 17:40

So one

Rebalancing As A Return Engine

SPEAKER_01 17:41

of the things we're often taught when it comes to investing is you need to let your winners just run. Uh, obviously, when you're rebalancing, you're not exactly doing that because you're trimming the winners to buy the losers. Um, explain the importance of rebalancing from a risk parity perspective when it comes to exactly those examples.

SPEAKER_00 17:57

Yeah, if you think about it, so so imagine you just have two asset classes. You have global equities and you have commodity producers. And let's say, just to keep the math simple, over time they they have the same return. But you know they go through significant divergence over time. And I just give you a few examples of that. So if all you did was hold both of them, you get the average return over time. But if you rebalanced, which is a programmatic way to buy low and sell high, you sell a little bit of whatever's outperformed, you buy a little bit of what it's underperformed, you can see why conceptually you should get a higher return over time than if you just held both, because you're repeatedly buying low, selling high by definition. And whether you do it on a quarterly basis, annual basis, you do it, you know, if it deviates more than 10%, whatever number you set, you're probably going to get a higher return over time by rebalancing. So, and then by the way, you're also controlling your risk because you're not getting too concentrated in either segment as it deviates. So, so mechanically, it seems to make sense. Um, but as you mentioned, it's hard to do because you're supposed to let your winners run. It's hard to sell the winners, it's hard to buy the losers. Uh, but we know that math is can be very compelling.

SPEAKER_01 19:10

Yeah, and it's rebalancing is basically a way of playing mean reversion to some extent, right? I mean, that's that's why you're doing that. I usually used to always say the line that um mean reversion is a concept that's as old as the Bible. It's like he was first shall be last and last first. Yeah, that's that's mean reversion. Um okay, so so um I think a lot of interesting things we've covered here as far as uh how that works with RPAR and then obviously your your levered version with the par. Um

RPAR Versus 60/40 In Volatile Inflation

SPEAKER_01 19:37

for those that are looking for a one-stop shop fund that they can just buy and hold, uh make the case for why uh RPAR is a better option than a more traditional 6040, which would not have the commodity-producing equities.

SPEAKER_00 19:52

Yeah, I think that's part of it is uh I think of as a one-stop shop as you want to be as diversified as you can be, because that's what I think wins over time is the diversification that allows the power of compounding to continue through time. Um so 6040, think of it as you have 60% global stocks, 40% core bonds. There's no inflation hedges in there. Maybe the equities have a little bit of it, but in the 1970s, global equities underperformed cash. In the 2000s, global equities are negative. So that's not great. Um, you know, you can go through another loss decade, you know, especially when valuations are high. So what's missing in that 60-40 mix is are inflation hedges. And by the way, this is the first time since the early 80s that inflation has been a problem. Um, and and if you go back over 100 years, I think this is an interesting data point, and you just look at what inflation has been over time. The normal environment, inflation is volatile. It was just a relatively short period, but it takes up most of our investing lifetimes where inflation was low and stable. So low and stable is not normal. It's abnormal when you zoom out and you look at over a longer period of time. And today, inflation is not low and stable anymore. It's higher and it's more volatile and it's more uncertain. So, in a world like that, 6040 is not really that well diversified because it doesn't have any inflation hedges. So, so if you're concerned about inflation, you think inflation volatility may return, then including inflation hedge assets like uh gold, which we talked about last time, commodities is another one, inflation link bonds is another one, those I think become a core component of a balanced allocation. And that's the big difference between 6040 and a risk parity framework, where you're incorporating some of those uh diversifying uh assets. So, so I think that's a just a more balanced uh exposure to public markets. Um, and uh I think just a more sensible approach when inflation is more volatile as it is today.

SPEAKER_01 21:58

I couldn't agree more with that. And you know, 6040 stocks bonds, beta is credit risk in the in the bond market, and it's not as diversified, obviously, as as you'd think,

Where To Learn More And Closing

SPEAKER_01 22:10

right? With from that perspective, because of the factor exposure. Um, everybody, uh, learn more at RPAR. I'm a big fan of Alex and the work he's done. I think this is actually really interesting fun. I'm not saying that because Alex is a longtime client and friend, but you know, I it really is a good framework for a lot of people. And you know, if you if you want to uh sleep well at night, I I think this is as good as it gets, uh, which matters uh because let's I need sleep.

SPEAKER_00 22:32

We all do.

SPEAKER_01 22:33

We all appreciate everybody that watched this uh live stream again. This will be edited uh probably out in the next uh hour, actually, as I get my AI agents to be much more efficient and effective. And uh we'll do another one of these on uh another part of the risk parity uh framework next week or the week after. So thank you, Alex. As always, appreciate those that watch us.

SPEAKER_00 22:48

Thank you.

SPEAKER_01 22:49

Cheers, everybody.