Wednesday May 25, 2022

Commodity funds: what’s the point?

The crisis in the stock markets and the growing demand for commodities are leading the company’s investment to different product offerings in this area of ​​the capital market. So get the word out about the funds.

The main drivers of the daily rise in commodity prices are some fast-growing countries, with a large increase in demand for virtually all commodities. Rapid development results in the growth of consumption and energy years (energy and metals), the people are rich, buy more and better food (ie all agricultural commodities, including farming), etc.

The problem with some commodities is the bag of momentary hysteria that has erupted around them as a result of unhealthy price increases and sharp volatility. The triggering mechanism is not so much demand from the mentioned countries, such as in India or India, but speculative trades of large investors in the form of hedge funds, which first buy the price to the maximum with their purchases and then with realization profit and big sales Fall. They are replaced by the first situation, when commodities are becoming very popular due to problems in the stock markets, and they are still being talked about as an interesting alternative to traditional investments, for example in action.

In the case of agricultural commodities, the negative is the very strong influence of seasonality related to the weather and not easy storage, which suits the speculators of short-term speculators rather than long-term strategies. Dal danger, thanks to which it is very difficult today to predict the price development of some agricultural commodities, their use as biofuels. Some types of cereals are thus preferred to others, which leads to a relatively large imbalance in supply and demand and, in conjunction with speculative trade, is reflected in growing volatility.

One of the inconveniences is the fact that, unlike a share or a bond, commodities do not have regular returns (dividends, coupons). Commodities can be an interesting investment tool, but more for experienced investors who can assess the risks associated with them and do not invest in commodities in most of their resources. The popularity of practically all types of commodities into one-off assets is, due to the fact that the differences between their individual types are somewhat less expensive, especially in terms of investments offered by inexperienced investors.

In addition to certificates or ETFs (such as the Goldman Sachs Commodity Index, Dow Jones AIG Commodity, Rogers International Commodity Index, Commodity Research Bureau, S&P Commodity Index, or their sub-indexes), which for some time act as a tool for investors who do not want to undergo high risk of investing in futures contracts on commodity exchanges, today more and more common funds appear in some way related to commodities, or commodity indices.

How is the supply of commodity funds
So far, the last fund that seeks to attract commodities to retail investors is Pioneer Funds – Commodity Alpha, which Pioneer Investments recently launched. The fund’s benchmark is the Dow Jones AIG Commodity Index (the fund also includes some selected commodities that are not included in the index). The fund, with the fact that commodities are not immune to the recession (losing, especially in the late phase of the recession, what may be the first situation that will be in the near future) and thanks to the active first will also hold short positions in selected commodities.

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