investing in commodities - johannesburg stock … · investing in commodities “but one can trade...

Investing in Commodities

“But one can trade futures in actual commodities as diverse as WTI oil, copper, platinum , silver and of course gold. Then there are also the Exchange Traded Notes issued over an even wider range of commodities ‐ all offering diversification to your portfolio.”

Why do we care?

“Oil Trades Near Two-Day High as U.S. Stockpiles Counter Europe” BN

“Gold 22% Rally to Record Seen by Sprott as Debt Damps Economy: Commodities” BN

“Gold to Hit $2,000 by Year-End on More Fed Easing: Merrill” CNBC.com

“Feds Declare Drought Emergency Across 1,000 Counties” CNBC.com

www.vunaniprivateclients.co.za | [email protected] | Tel: (011) 384 2920/30

Exchange Traded ProductsOffer investors exposure to the performance of a single commodity of basket (Index)

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Performance countsReturns on parity with equities

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OverviewSeveral benefits for the investor

Commodity ETFs: the first commodity ETF was launched in Canada in March 2001.

Commodities as an asset class typically exhibit low correlation to equity indices, and commodity ETFs allows investors to satisfy asset allocation and diversification requirements, hedge inflation or speculate on commodity indices

Why include commodities in your portfolio?Strategic• A long‐only passive investment in commodities can provide investors with significant portfolio benefits.• Counter cyclical with stocks and bonds.• Diversification.• Macro Economic Hedge against rising growth.• Potential for high equity‐like returns.Tactical• Outlook for commodity investment returns can be both cyclically and secularly bullish.• Severe capacity constraints due to lack of infrastructure investment.• Significant benefits are expected to come from backwardation in the energy markets.

Portfolio diversification: commodity returns have historically displayed low correlation with equities or other asset classes.Performance: As equities and other traditional assets perform well, commodities have tended to underperform these asset classes. However, as other asset classes decreased in value, commodities have sometimes provided positive returns for investors. Potential portfolio protection: historically, commodities are one of the few asset classes to have benefited from rising inflation.Investing in commodities can potentially provide some portfolio protection against accelerating inflation. In addition, commodities have often proved more resilient than other asset classes to geopolitical and macro‐economic shocks. Indices are a convenient way to access a group of commodities.

What makes commodities an asset class?Add diversification to your portfolio

• Asset classes have traditionally included local equities, fixed income, property and cash equivalents.

• Historically positions in commodity markets largely restricted to hedging of physical demand or producer exposures (with the notable exception of gold).

• However, for a long time now investors have viewed commodities as a distinct asset class, with the possibility of generating excess portfolio returns by actively taking positions in commodities.

• distinct advantages they offer over traditional asset classes: • Globally traded/generally highly liquid• Low correlated with fixed income securities and equities.• Precious metals only 0.49 correlation with equities (high

resource component in Equity Index). • All other asset class returns are negatively correlated with

precious metals, with the fixed income and cash classes displaying a fairly strong negative correlation. Can provide diversification benefits within typical investment portfolios.

• Offer protection against inflation, usually superior to that of the other asset classes.


Commodity ETF

GLD NewGold (GLD)

Single Commodity ETNs

RMB Coal ETN (COLRMB)

RMB Oil ETN (OILRMB)

SB WTI OIL ETN (SBAOIL)

SB GOLD linker (SBAG1)

Newwave SLV ETN (NEWSLV)

SB Silver linker (SBAS1)

SB Copper ETN (SBACOP)

SB Paladium linker (SBAPD1)

SB Platinum linker (SBAPL1)

Newwave PLAT ETN (NEWPLT)

WHT SB WHEAT ETN (SBAWHT )

SB CORN ETN (SBACRN)

Index Commodity ETNs

SB Commodity Inde ETN (SBACI)

Newwave Index ETN (NEWBCI)

JSE Equity market


ETPs providing exposure to ‘Commodities’ can be based on different types of underlying investments/vehicles which can lead to significant difference in performance:Physical commodities� Price is based on the traded price of the physical underlying commodity. The commodity is typically stored in a vault. For example: gold, silver, platinum, and palladium.Futures� Price is based on an index level which is derived from underlying futures contracts.Typically used for exposures that cannot be physically stored or represent a basket of commodities. For example: agriculture, energy, industrial metals, and livestock.

Commodity ETF

GLD NewGold (GLD)

















JSE Equity market


Exchange Traded Funds (ETFs)

Exchange Traded Funds (ETFs) are listed investment products that trackthe performance of a basket of shares, bonds or commodities. An ETF canbe bought and sold just like an ordinary share.

Benefits:Diversification - One ETF share gives you exposure to a fund of instruments and not just to one instrumentLiquidity - Investors can buy or sell ETFs quickly and at a low cost on the JSE Hassle free - Investors can gain exposure to a wide variety of securities or assets without extensive research and administrationRegulation - ETFs are well regulated by the JSE and FSBDividend distributions - Investors may receive dividends when instruments held in the fund pay dividends (not applicable to all ETFs)Exempt from Securities Transfer Tax - Currently most ETF's are exempt from STT upon purchase (not applicable to all ETFs)

Commodity ETF

GLD NewGold (GLD)

















JSE Equity market


Exchange Traded Notes (ETNs)An Exchange Traded Note is a contractual obligation made by an issuer to pay the holder a return which may be linked to, for example, an interest rate, the performance of one or more shares, an index, an exchange rate or a commodity

Benefits:- Tracking errors are eliminated as ETN's give investors exact returns of an index- ETN's are easily accessible as they are traded and settled on the JSE- ETN's can act as an effective hedging tool

Performance countsReturns on parity with equities

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Not all commodity Indices are created equal!“… that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness.” Thomas Jefferson


Vunani Private Clients

[email protected]: (011) 263 9500Fax: (011) 884‐8458

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investing in commodities - johannesburg stock … · investing in commodities “but one can trade...

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