In an article in City AM this morning, he went on to say: “As an asset class with volatility similar to a equities, but with expected returns little better than government bonds, commodities offer neither an income stream nor a risk premium.
“As such, they represent exactly the type of unnecessary risk investors should avoid.”
On the plus side, investors seem to be contradicting him with results released this morning of a survey by ETF Securities that concluded investors will continue to invest in commodities, with cyclical such as platinum, palladium and industrial metals at the top of their list.
Admittedly ETF Securities is one of the leading providers of exchange-traded commodities, and the questions were asked at a series of commodity investment conferences across Europe, but the extent to which they are positive about commodities is perhaps surprising – one fifth of those polled had commodities as one of their top-three asset class picks for this year.
Also on the plus side, given commodities’ lack of correlation to equities and bonds a portfolio can benefit from the diversification qualities and even hedging qualities should equities and/or bonds move south.
On the down side – putting the age-old problem of commodities largely being priced by sentiment and demand/supply rather than fundamentals – is the schizophrenia brought on by looking at commodities as a whole.
“If the consensus growth story proves wrong, gold will likely perform,” according to Nicholas Brooks, head of research and investment strategy at ETF Securities.
However, if the consensus growth story proves right then other metals – platinum, silver and copper in particular – are tipped to do well. Exchange-traded products in the first two metals received $1.3bn and $841m respectively last year as investors moved away from gold to those metals more closely associated with global industrial growth.
As with the most successful asset classes of the recent past, investors need to drill down and, for example, stop talking about a 30-year bull market for fixed income, or a four-year bull market for US equities, or the decade-long rise in emerging markets.
Instead, investors need to talk about investing into high yield or investment grade, into stock-picking or value/growth US equity managers, or even emerging market managers concentrating on, say, company-specific rather than style-specific factors.
It is the same with commodities – rather than investing generally, be specific.
