THE slowdown in the global growth engine has impacted asset classes across the board, and commodities are no exception. Barring gold, both hard (metals, crude oil, etc) and soft (farm) commodities have fallen from record high levels witnessed in the first-half of 2008. For example, crude oil, which soared to an all-time high of $147 a barrel in July last year, is currently traded at $30 levels.
While the commodities bull run commenced in the early part of this decade, many investors, who put their money into commodity
funds towards the end of 2007, have seen their wealth all but evaporate and now fight shy of viewing commodities as an asset class.
H o w e v e r, even as some investors lick their wounds, there is another class of buyers that views current prices to be a steal and has therefore put commodities on its shopping list with an eye on the long-term.
This class, experts say, believe that as the US economy claws its way out of a recession and, in turn, spurs growth in emerging economies, commodity demand will begin to look up. This makes beaten-down commodities an attractive proposition from growth and portfolio diversification points of view over the long-term.
Unfortunately, in India, except for the gold exchange traded funds (ETFs), there are no other commodity ETFs to invest into. This means that if an investor has a bullish view on crude, the option open for her is to buy a commodity futures that is traded on bourses such as the Multi Commodity Exchange of India (MCX) or the National Commodity & Derivatives Exchange (NCDEX) or to invest indirectly into the commodity by purchasing an energy scrip such as ONGC, IOC or BPCL that are listed on stock exchanges. To take a naked long or a short on the commodity bourses involves an expertise not just about demand and supply factors, etc, of the underlier but also of the derivatives contract itself. The positions also are marked-to-market on a daily basis which cap expose an investor to unlimited losses.
Indian mutual funds do comprise certain products that invest in Indian and global
c o m m o d i t y stocks. The problem here is that barring SBI Comma Fund, which has a threeyear track record, other funds are relatively new. Reliance Natural R e s o u r c e s Fund, for one, is just a yearold. This leaves investors with little choice to make an informed decision.
Further, buying into commodity thematic funds exposes an investor to risks that exceed those associated with investing only in the underlier. Buying a commodities company exposes one to company-specific issues related to management, track record, accounting norms, government policy, market sentiment, etc. Hence, while steel prices move in either direction, scrips of, say, Tata Steel and SAIL may not move in the same proportion.
Last but not the least, the scheme an investor selects should be in a position to sail through troubled waters and pick the right candidates (stocks) to deliver the promised returns.
nikhil.walavalkar@
timesgroup.com
While the commodities bull run commenced in the early part of this decade, many investors, who put their money into commodity
funds towards the end of 2007, have seen their wealth all but evaporate and now fight shy of viewing commodities as an asset class.
H o w e v e r, even as some investors lick their wounds, there is another class of buyers that views current prices to be a steal and has therefore put commodities on its shopping list with an eye on the long-term.
This class, experts say, believe that as the US economy claws its way out of a recession and, in turn, spurs growth in emerging economies, commodity demand will begin to look up. This makes beaten-down commodities an attractive proposition from growth and portfolio diversification points of view over the long-term.
Unfortunately, in India, except for the gold exchange traded funds (ETFs), there are no other commodity ETFs to invest into. This means that if an investor has a bullish view on crude, the option open for her is to buy a commodity futures that is traded on bourses such as the Multi Commodity Exchange of India (MCX) or the National Commodity & Derivatives Exchange (NCDEX) or to invest indirectly into the commodity by purchasing an energy scrip such as ONGC, IOC or BPCL that are listed on stock exchanges. To take a naked long or a short on the commodity bourses involves an expertise not just about demand and supply factors, etc, of the underlier but also of the derivatives contract itself. The positions also are marked-to-market on a daily basis which cap expose an investor to unlimited losses.
Indian mutual funds do comprise certain products that invest in Indian and global
c o m m o d i t y stocks. The problem here is that barring SBI Comma Fund, which has a threeyear track record, other funds are relatively new. Reliance Natural R e s o u r c e s Fund, for one, is just a yearold. This leaves investors with little choice to make an informed decision.
Further, buying into commodity thematic funds exposes an investor to risks that exceed those associated with investing only in the underlier. Buying a commodities company exposes one to company-specific issues related to management, track record, accounting norms, government policy, market sentiment, etc. Hence, while steel prices move in either direction, scrips of, say, Tata Steel and SAIL may not move in the same proportion.
Last but not the least, the scheme an investor selects should be in a position to sail through troubled waters and pick the right candidates (stocks) to deliver the promised returns.
nikhil.walavalkar@
timesgroup.com
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