Commerzbank explains its themes at Lausanne Summit
InvestmentEurope’s recent Lausanne Summit saw ten management groups outline their unique investment ideas, including Commerzbank.
China drives commodities
Commerzbank’s Commodity Strategy Fund invests in commodities which typically face demand higher than supply, with China the primary driver, fuelling over 40% of global demand for aluminium, copper, zinc and nickel, and 20% of demand for metals generally.
Eugen Weinberg, head of commodity research at Commerzbank, said central banks would be net buyers of gold this year, only the third year since 1989. Oil’s price would also be buoyed by generous social security promises announced recently in major oil producer Saudi Arabia.
Commerzbank noted commodities share prices were often poor proxies for the prices of raw materials. Gold shares have a 0.3 correlation to gold prices, but a 0.7 correlation to global shares, for example.
In 2008, gold bullion rose, while shares of miners plunged in broad sympathy with other equities. Platinum rose by about 20% this year to August, whereas miners’ shares have fallen, in some cases by up to 50%, amid severe employment disputes in South Africa, which is the home of 75% of global production.
But commodity spot prices for the physical goods display historic low correlation with other asset classes, so commodities can be an effective diversifier within a portfolio. Prices of major precious and base metals, and crude oil have all outperformed global and European shares since 2002, but the various prices have diverged from one another.
The fund can have between zero and all of its assets in commodities markets. In May it had about 50% exposure, whereas by the end of August it was about 96%. The process for managing the fund involves an assessment of the macroeconomic/ political situation, a fundamental and technical review of the commodities markets, and risk analysis, to produce an allocation decision between commodities and money market exposure. The team then conducts a fundamental and technical review of commodity segments and of individual commodities, a comparison of the relative attractiveness of individual commodities, and risk assessment and consideration of investment guidelines, to determine weightings of commodity segments, as well as of individual commodities.
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