INVESTING IN COMMODITIES
100 150 200 250 300 350 400 450 500
50 0
Jul-07 Jul-08 Jul-09 Jul-10 Sources: Bloomberg, MTN-I, ETP issuer data, Barclays Capital
In the last two years, the commodity story was about rapidly growing demand (and re-stocking). This produced large contangos in many markets, cutting into returns for traditional (passive) index investors. Rather than capturing positive risk premium, commodity
We have now entered a period of more subtle price We have now entered a period of more subtle
index investments became a straightforward directional bet on prices. “Spot price appreciation has provided all the returns to [traditional] index investors every year since 2004 with the exception of 2006 and (just) 2008,” explains Reuters’ John Kemp [see page 52].
appreciations (where they have happened) with large divergences both between, and within, different commodity sectors. Not surprisingly, active strategies are performing best. We note that, “Investors frustrated by the lack of returns from a passive or enhanced investments in commodities will not find succor in active indices. If they want commodity exposure, there is no substitute for a proper active strategy,” Kemp argues. Of course, in the event that the worst
price appreciations ... with large divergences both between, and within, different commodity sectors
does happen – with several developed economies (including the US) going back into recession and Asian commodity demand slowing – then all asset classes
are likely to suffer. This, or course, excludes gold (this time round). Economists at Standard Bank recently constructed an interesting scenario for commodity price performance based on the price performance during previous recessions [see page 8]. The long-term demand growth outlook for commodities
remains intact with emerging market demand underpinning a solid medium-term outlook for the sector. In the immediate future all eyes are on the regulators and the
new (and in some cases necessary) structural market changes coming our way – traders, risk managers and the investment community be prepared. Nevertheless, there are still plenty of ways to buy the long-term commodity story. We investigate these in the pages that follow •
Guy Isherwood is Publisher and Editor-in-Chief, Commodities Now
All articles from this Investing in Commodities Supplement can be downloaded at:
www.commodities-now.com
Footnote: 1. A New World Order: When Demand Overtakes Supply: Véronique Riches- Flores & Loïc de Galzain, Société Générale, July 2011.
www.sgresearch.com
36 September 2011 Jul-11
Total Commodity AUM: US$431 bn Institutional & Retail Commodity AUM (US$ bn)
12
Medium Term Notes Exchange Traded Products Commodity Index Swaps
-9 -6 -3 0 3 6 9
Jul-09
ETPs, Indices & MTNs ... Inflows Monthly Inflows Into Commodities (US$bn)
Medium Term Notes Exchange Traded Products Commodity Index Swaps
Jan-10 Jul-10 Jan-11 Jul-11
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