Commodity Investors Turn Active in Pursuit of High Return

admin — Thu, 01 Jan 2009 15:25:14 +0000

For commodities, 2009 has been a resurgent year, although not necessarily for the people who invest in them.
Buy-and-hold investors who have poured money into products tracking commodity indices, evangelized as a component of smart asset allocation, in many cases got lower returns than the commodities they hoped to track.
The disappointment, caused by unique quirks of futures markets, has spurred commodity investors to look for more active management of commodities. The trend runs counter to equities, where investors fed up with middling performance have performance have jilted stock pickers for index funds.
Among investors recently surveyed by Barclays Capital, most planned to increase exposure to commodities, and 40% expected to choose active third-party managers in the coming year. Interest in so-called “long-only” index investments, which buy futures in hopes of price appreciation, declined, said the bank.
Investor interest in active management follows an uninspiring year for commodity index investment. The spot price of the Standard & Poor’s GSCI, which measures just the price appreciation of the underlying commodities, has gained 43% this year. But investors who stuck with products mimicking the index have seen returns of only 8%.
Similar woes have beset some single0commodity investment products. The $2.5bn US Oil exchange-traded fund has rise 10% in 2009. Drastically underperforming US crude futures’ 67% gain.
The reason for this is that, unlike stock index funds, commodity funds hold futures contracts that expire. To stay in the market they must sell these and buy forward contracts for longer, mitigating the costs of expiration. But investment managers are reporting new interest in a more hands-on approach as investors chase higher returns.

State Forex Station » Commodity Investors

Commodity Investors Turn Active in Pursuit of High Return