Benjamin Louvet puts faith in future demand for commodities
Prim’ Finance co-founder Benjamin Louvet discusses how to navigate the commodities markets in turbulent market conditions.
Commodities have been a tricky asset class in 2011, with a number of geopolitical and macroeconomic events causing prices to fluctuate and managers to flounder.
Prim’ Finance, a French asset management company specialising in commodities, has remained staunch in the face of adversity and launched a new fund in June to invest in the energy, base metals and precious metals sectors.
The fund, Prim’ Commodities, will invest directly in commodities using total return swaps on a commodities futures customised index. Its investment universe includes oil products, natural gas, aluminium, copper, lead and zinc, as well as gold, silver, platinum and palladium.
The fund’s investment process is both quantitative and qualitative, using an actively managed allocation between the various commodities. The fund is managed by Benjamin Louvet, managing director and founder of Prim’ Finance.
Louvet and fellow co-founders Médéric de Vasselot and Xavier le Blan established Prim’ in 2002 having worked together in managed futures at BNP Paribas. Their combined expertise gave them the confidence to launch the fund at such a time. Louvet says as commodities increase in rarity, the returns the fund makes will increase. He is therefore aiming for 10% returns per year in the long term. Commodities will inevitably become scarcer in the next 30 years, he says, as there has not been a major oil find for 20 years and China’s demand for metals is surging.
By focusing on commodities, the fund should provide investors with diversity, protection and stability, Louvet says. This has not been the case so far, he admits, as the fund’s positive performance since its launch was tarnished by the “exceptionally difficult” month of September.
Louvet took a gamble positioning the fund defensively while remaining 100% invested, hoping that the European economic situation would improve. This was not the case and commodity investing was in fact exacerbated by the dollar’s rebound.
Commodity prices are intrinsically linked to the dollar and when the dollar strengthens, commodity prices drop. Louvet’s fund was down 16% in September, bringing performance since launch to a negative 9%.
However, Louvet learned from this experience and has become more prudent about the impact of macroeconomic factors on the fund’s performance. The fund will now retain its defensive positioning but will be less exposed, he says.
The fund’s short-term performance will depend on the way Europe emerges from the current crisis, Louvet says. “If there is a miraculous solution, the metal and petrol markets will rebound. If the European situation remains difficult, most commodities will struggle,” he adds.
According to him, the only commodities that fare well in choppy markets are precious metals, which is why his fund has a 30% allocation to the sector. Prim’ Commodities is 35% invested in energy (primarily petrol), 35% in base metals and 30% in precious metals.