Commodities Comeback?
COMMODITIES HAVE BEEN underdogs relative to equities for much of the past few years. But the tides are now turning, S&P Dow’s Vice President Jodie Gunzberg suggests. Amid supply shocks around the globe, tapering
of quantitative easing in the US and a rising interest rate outlook, commodities from corn to hogs to oil have shone in 2014, leaving equities in their shadows, Gunzberg told
ETF.com in a recent interview. “Commodities and stocks have had a long
relationship of switching off performance because of the underlying cycle of what’s happening in the companies and the goods that they produce. Equities are forward-looking, and now they’ve been ahead of commodities for six years straight. That’s the second-longest stretch of out-performance over commodities since 1980 to 1987,” said Gunzberg. “February continued the 2014 theme of commodities being driven by fundamental factors, largely uncorrelated with other asset classes. This included severe weather affecting agriculture, a virus affecting lean hog supplies, and multiple sectors affected by tensions in Ukraine,” Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy recently told the Wall Street Journal.
Commodities have overtaken
benchmark fixed income returns to become the best performing asset ...
“We believe correlations between commodities and traditional asset classes will continue to remain low. We anticipate individual commodities will continue to be increasingly driven by commodity-specific factors, and we continue to expect commodities to provide valuable portfolio diversification benefits going forward,” added Burton.
Commodities have overtaken benchmark fixed income returns to become the best performing asset class on an excess returns basis so far this year. “This strength became more broad-based last month as all sectors, with the exception of industrial metals, are now posting positive returns since the end of last year,” report Deutsche Bank.
-1 0 1 2 3 4 5 6 7
Figure 1: 2014 Asset Class Performance Total Returns, year-to-date (%)
Commodities: DJUBSCI FX: DB Currency Returns Index Bonds: DBIQ Global IG Sovereign Equity: MSCI Global
EM: DBIQ EMLE 0.7
-0.3 FX
0.8 2.0 6.5 Equity EM BondsCommodities Sources: Deutsche Bank, Bloomberg Finance LP (End February 2014)
Last month also witnessed US and European commodity ETPs enjoying their first inflows in over 12 months.
Commodities Brewing
• The S&P GSCI was up 4.5% in February and was in backwardation for the first time in February since 2004. In 2004, the S&P GSCI returned 17.3%.
• 22 of 24 commodities in the S&P GSCI were positive in February.
• All 5 sectors were positive, led by agriculture, up 9.7%, which had its best February since
2008.
• Coffee had its best month in 20 years and its second best month in history going back to
Feb 1981. The S&P GSCI Coffee gained 44.0% in Feb 2014, only behind the gain of 52.1% in June 1994.
• 6 single commodities had a total return greater than 10% last month. Coffee, lean hogs, sugar,
soybeans, wheat and silver gained 41.7%, 12.7%, 11.4%, 11.4%, 11.1% and 10.9%, respectively.
“We have discussed a number of factors that may be supportive of the asset class including inflating fears of inflation, rising interest rates, falling correlations, backwardation is back and also stocks have led the stock/commodity cycle for the longest
March 2014 5
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