Investors and managers differ on value in commodities

Investor demand for direct commodities is rising but managers favour the equities on valuation.


However, there are only a few, very new, funds available and capable of trading this way and equity managers argue better value can be found at their end of the market.

Speaking at a Cofunds roundtable on commodities, Toogood, director of OBSR’s investment services, said the huge disparity between the actual commodity prices and the equities, like miners, has led to greater demand for the underlying instruments. While more funds of this nature are coming to the market, such as recent offerings from Fulcrum and JPM Highbridge, he points out the talent pool capable of managing such funds is quite narrow. This makes it difficult for groups to launch vehicles with any credibility, he adds. 

Blackrock’s Catherine Raw argued it is the disconnect between gold equities and gold’s price that actually makes the equity side more attractive.

Although the physical asset is above $1,550, gold miners are priced at a level closer to between $800 and $900 gold price. Blackrock’s Gold & General fund used to hold a physical gold ETF but doesn’t at the moment as the group sees greater value on the equity side.

“Gold sold off in February but it rapidly recovered to $1,570; gold equities didn’t move with it,” Raw said.

Typically gold equities tend to run ahead of the physical asset but not at the moment, she notes. Raw says analyst forecasts for gold also keeps fluctuating with some looking at out five years and forecasting a price below $1,000 while other data shows it rising for many more years.

“As an equity investor, I’d prefer for analysts to keep underestimating the price. That disparity is where we can generate around half of our alpha.”


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