market intelligence
THE FINANCIALISATION
OF COMMODITIES
15%
BY WILLIAM HUBARD DISCOUNT
FOR IFR
SUBSCRIBERS
Investment in commodities is an idea that Indices featured include: The Financialisation of Commodities takes
has been around since the 1970s, but only in
• CYD Long Only Commodity Index
each major commodity group in turn, examining
recent years has it become popular with
• CYD Long Short Commodity Index
the common issues affecting the entire group,
institutional investors. The presence of
• CYD Market Neutral Commodity Index
before looking in more detail at the individual
financial investors in commodity markets has commodities themselves. It profiles their key
increased almost threefold in the past four
• CX Commodity Index
characteristics and market drivers, highlighting
years and with it the range of instruments and
• Diapason Commodities Index
the main issues the investor needs to know.
strategies employed in commodity trading
• Deutsche Bank Liquid Commodity Index
has broadened substantially. • Deutsche Bank Liquid Commodity Index –
Commodities covered include:
Mean Reversion AGRICULTURAL COMMODITIES
Commodities can reduce portfolio risk by
helping investors diversify portfolios that contain
• Deutsche Bank Liquid Commodity Index – • Coffee • Palm oil
more traditional assets such as stocks and
Optimum Yield • Corn • Soybeans
bonds, because over long time periods they
• Deutsche Bank Liquid Commodity Index –
• Cotton • Sugar
bear very little, or even negative, correlation with
Optimum Yield Broad
• Lumber • Wheat
other asset classes. They can also be used as a
• Deutsche Bank Liquid Commodity Index –
ENERGY COMMODITIES
hedge against inflation and to changes in the
Optimum Yield Balanced
• Carbon • Ethanol
rate of inflation, since they are directly linked to • Dow Jones-AIG Commodity Index
• Coal • Natural gas
the components of inflation.
• Lehman Brothers Commodity Index • Crude oil • US power
The Financialisation of Commodities, by
• Merrill Lynch Commodity Index eXtra • Refined oil products
William Hubard, is an intelligence report
• Reuters-Jefferies/CRB Index
INDUSTRIAL METALS
published by IFR that looks at how the • Rogers International Commodity Index
• Aluminium • Tin
commodities market works and examines the
• Standard & Poor’s Goldman Sachs
• Copper • Zinc
drivers behind the phenomenal growth in
Commodity Index
• Lead • Iron ore
commodity-related investment. It explores the
• UBS Bloomberg Constant Maturity • Nickel • Steel
growing range of commodity-related
Commodity Index
investment products, offering expert insight into
PRECIOUS METALS
• Baltic Dry Freight Index
how and when to use them. It should be essential • Gold • Platinum
reading for all commodity investors and for the • Silver • Palladium
banks and other firms that serve them.
THE COMMODITIES PLAYERS
Commodities are attracting record amounts of
cash from institutional investors such as pension
INVESTMENT PRODUCTS
ABOUT THE AUTHOR
funds and insurance firms, but it has been the
The upturn in commodity prices in the last few
hedge funds, in particular, that have led the way
Bill Hubard is an investment industry luminary
years has been accompanied by greater variety
in the complex and huge-scale movements of
with 36 years of financial market experience
in the types of investment products and
money into the commodity markets. The covering many asset classes. Bill began his
strategies, driven by the requirements of
Financialisation of Commodities looks at the career at the Morgan Guaranty Trust Co of New
traditional institutional investors and newer
different types of investor, assessing their
players such as hedge funds. The report explains
York in September 1971. He then moved to FS
respective motivations for increasing exposure
how these products are structured, discussing
Smithers to do risk arbitrage/mortgage-backed
to commodities, and offering guidance on which
their application and relative benefits and risks
securities. In 1978 he formed MaxCor with
investment opportunities best suit their needs.
for a range of different investor groups.
Bruce Maxwell to do repos (one of the first
The report also assesses how the changes in
government repo brokers in New York), and for
Products examined include:
scale and character of financial investor involve- seven years was the repo broker for Salomon
• Index funds
ment may have affected the price dynamics in Brothers/John Merriwether He also helped
• Commodity derivatives and futures
commodity markets, looking at what this might execute (one of the) first asset swaps between
• Commodity-linked structured notes imply for the future shape of the market.
Citicorp and Detroit Edison. Bill then ran the
• Collateralised commodity obligations (CCOs)
On the sell side, the report outlines the main
Asset-Liability group for RZB-Austria (London)
• Exchange-traded funds (ETFs)
commodities players’ strategies to increase
followed by the BTP swaps desk at ICAP.
• Exchange-traded commodities (ETCs)
commodity-related revenues that generated
Retiring in 1995, Bill was hired (1997) to run
US$12bn in 2006 alone. Bloomberg's in-house training programme and
Commodity indices
went on to give a series of lectures to the
THE OUTLOOK FOR COMMODITIES fledgling Bloomberg TV operation before
The report also looks in detail at a range of the
The fantastic bull-run in commodities in the last becoming 'Bill at the Bloomberg Big Board' with
most commonly used commodity indices. It
couple of years conceals considerable variation
his bow tie and braces. He followed this with a
describes the number and type of commodities
in the performance between, and even within,
incorporated into each index, the weight
two-year stint with CNBC-TV (Europe) as
the main commodity groups, each of which is
assigned to each commodity and the index
economics commentator. He was appointed
influenced by an array of political, economic and
mechanics.
Chief Economist at MIG Investments in
climatic factors. Moreover, the huge inflow of
November 2007 and appears on CNBC-TV
new money in recent years is itself influencing
commodity markets in complex and often
Europe Fridays at 12:00 CET, and on a regular
arcane ways.
basis for CNBC-TV Arabiya.
For more details on this report
see the full contents list >>>
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