Commodities have been at the bottom of the asset class table for the last number of years. In fact, an investment in a commodity index over the last 10 years would give a negative return today.
Articles have appeared in some financial journals asking, “Are commodities dead as an asset class?“. A huge investment in commodity infrastructure on the back of cheap credit for corporates and higher than expected global growth from both developed and emerging markets, lead to a massive oversupply in many commodities markets. This has driven down prices to 10-year-lows as producers try to off-load their supplies.
However, we all know markets are cyclical and after “oversupply” you tend to get “under-supply” and after “underperformance” you tend to get “out performance”. Friends First launched a 2nd generation commodity fund called Commodity Optimum Yield fund in 2013. The fund hit a low at around the second week of February 2016 when oil fell to $26 a barrel, since then the fund has recovered +8%.*
Markets appear to be stabilising so could this finally be the bottom after a 12 year decline for commodities?
In the next 3-5 years, we anticipate that demand will increase and the oversupply will wash out of the system leading to higher prices. If these predictions are correct and commodities recover, now may be the time to add some commodities to your portfolio. Global asset allocation portfolios typically cap their exposure to commodities at 10%.
Friends First’s Optimum Yield Commodity fund, managed by Deutsche Asset Management, gives an investor access to the leading 14 commodities, which are:
- RBOB Gasoline
- Brent Crude Oil
- Heating Oil
- WTI Crude Oil
- Natural Gas
The Friends First Optimum Yield Commodity fund is available as a standalone fund option as well as featuring within a number of our Magnet range of portfolio funds. The Magnet range are ready-made portfolios, each designed with a particular type of investor in mind, making it easier for you to select the right investment for your needs.
The Optimum Yield Commodity fund and the Magnet Range are available across the Friends First suite of Pensions, ARF (Approved Retirement Funds), AMRF (Approved Minimum Retirement Funds) and Savings and Investment products.
For more information on the Friends First range of funds, please speak to your financial adviser.
*Source: Moneymate, 12/05/2016