Asset class popular for fund protection


In 2008 it seemed impossible to ignore the upward trajectory of commodities prices. Even the demise of Bear Stearns and Lehman Brothers failed to stop the rise in the price of oil and other commodities – at least until it became clear the financial crisis would tip the world into recession.

2008年,我们似乎无法漠视大宗商品价格的上升轨迹。就连贝尔斯登(Bear Stearns)与雷曼兄弟(Lehman Brothers)的垮台,也未能阻止石油及其它大宗商品价格的上涨——至少是在金融危机将把世界拖入衰退泥潭的迹象变得明显之前。

Oil in particular had a rollercoaster year, rising from $100 a barrel to $147 in July before plummeting to $32 in December. It has since recovered, but failed so far to get back over $100, trading between $70 and $80.


However, the financial crisis has, if anything, reinforced the view that commodities are in a “super- cycle”, albeit with occasional interruptions. The correction from the peak of 2008 has been large, but prices have “landed” on a higher plateau. The expectation is they will stay high, driven by demand, especially from emerging economies, as global growth accelerates.


“Over the medium term, emerging markets growth and the recovery in western economies will spur demand, while a number of key commodities remain supply-constrained,” says David Donora, head of commodities at Threadneedle.

Threadneedle大宗商品主管戴维•多诺拉(David Donora)表示:“中期来看,新兴市场增长与西方经济体的复苏将 刺激需求,而许多关键大宗商品仍将供不应求。”

Investor demand may also be a factor as commodity markets attract increasing flows from both short-term speculators and long-term institutional investors. Regulators and politicians have tried hard to pin the blame for high prices and volatility on such participants, and regulatory initiatives in the US may result in the imposition of position limits and other restrictions.


Experts dispute the idea that speculative flows would have much influence on prices, at least where institutional investors such as pension funds are concerned.


“Pension funds control a very small slice of the global commodities market and certainly not enough to move the price drastically over the long term,” says Alasdair Macdonald, senior investment consultant at Towers Watson. “Although it's difficult to attribute the [oil price] spike to just one thing, it was probably helped by additional pension fund demand clashing with a lagging supply.”

韬睿惠悦(Towers Watson)资深投资顾问阿拉斯代尔•麦克唐纳(Alasdair Macdonald)表示:“养老基金只控制了全球大宗商品市场的很小一块,肯定不足以推动价格的长期大幅变动。尽管我们很难将(油价)飙升归咎于一个因素,但额外的养老基金需求与供给不足的冲突,可能帮助推动了价格的上涨。”

Kevin Norrish, managing director, commodities research for Barclays Capital, says rules pension funds follow on asset allocation mean they tend to sell as commodities prices rise and buy as they fall.

巴克莱资本(Barclays Capital)大宗商品研究董事总经理凯文•诺里什(Kevin Norrish)表示,养老基金遵循的资产配置规则意味着,他们往往在大宗商品价格上涨时抛售,下跌时买入。

“As prices were going up, index dealer positions in Nymex WTI oil futures contracts were going down as a share of the market. When oil prices fell after July 2008, index swaps increased as a proportion of the market as pension funds needed to adjust their positions to maintain the dollar value of their allocations,” says Mr Norrish.

诺里什表示:“当价格上涨时,指数交易商所持纽约商品交易所西德克萨斯中质原油(Nymex WTI)期货合约的市场份额在下降。2008年7月后,当油价下跌时,由于养老基金需要调整头寸,以维持其资产配置的美元价值,指数掉期交易所占市场比例随之上升。”

Institutional investor interest in commodities has risen partly in response to a 2006 paper by academics Gary Gorton and Geert Rouw­en­horst.

机构投资者对大宗商品兴趣增加,在一定程度上是对学者加里•戈顿(Gary Gorton)与格特•鲁文荷斯(Geert Rouw­en­horst) 2006年合著的一篇论文的回应。

Working as consultants to AIG, an insurer and commodity investment manager, the two found that over a long period, commodity futures' returns match equities but with a negative correlation, indicating they usually go up when stocks fall.


“The argument that commodities offer an uncorrelated diversification away from equities is a persuasive one,” says Mr Norrish. “This diversification can increase a portfolio's return for a given level of risk, or reduce risk for a given level of return.


“Commodities behave differently and, if you make long-term strategic allocations, there should be no correlation with equities and bonds.”


Towers Watson's Mr MacDonald says UK pension funds themselves are not set up to make allocations to specific commodities.


“As consultants, our starting point is that pension funds are very undiversified,” says Mr MacDonald. “Our clients have spent the last five to 10 years diversifying. We bring them concepts, one of which is commodities as protection assets, used primarily for diversification rather than returns.”


Another argument in favour of greater allocation to commodities is their value as a hedge against inflation.


Threadneedle's Mr Donora says: “Hard commodities such as gold can be used as an efficient inflation hedge, and concerns about inflation can be a significant driver of precious metals prices.


“Managing a commodities portfolio, I'm more concerned that the tightening of monetary and fiscal policy will lead to increased risk of currency weakness. I'm still reluctant to call it inflation risk, but only because inflation statistics aren't what they used to be.”


However, others dispute whether commodities are an effective hedge against inflation.


Mr Norrish of Barclays Capital says: “I don't see a hedge against inflation to be one of the main benefits of exposure to commodities.


“Historically, commodities can appreciate when other assets don't and there have been times in the past when rising commodity prices have been a trigger for inflation, such as in the 1970s, when they were an important factor in kick-starting a wage-price spiral.”


But this scenario has not been seen for some time and the relationship between commodities and inflation has yet to be tested in an era of globalisation.


“If you're looking to hedge inflation, it is better to invest in inflation hedging instruments like inflation-linked bonds and inflation swaps. That way, you get a product designed to do a specific job rather than hoping another asset will provide inflation hedging based on what happened a long time ago.”


Towers Watson's Mr MacDonald says the inflation hedging aspect of commodities is a secondary argument for holding them. “Over the past two years, the price of oil has fallen dramatically but inflation has risen. There's an awful lot of volatility out there and, because of that, when it comes to hedging inflation I don't feel commodities are as efficient as other purpose-built financial instruments.”


Even if the efficacy of commodities as an inflation hedge is in doubt, few dispute the diversification benefits of holding them. So will commodities ever become a mainstream asset class for pension funds, like equities and fixed interest?


“We estimate there's around $290bn globally invested in commodities by pension funds and other institutions,” says Mr Norrish. “And that's a tiny proportion, less than 1 per cent, of the total amount of assets held globally.


“We're seeing a steady increase in exposure and we believe it's an asset class that will grow, though it's unlikely we'll ever see pension funds with as much exposure to commodities as they have to equities.


“Target exposures to commodities are usually no more than 5 per cent, so it will always remain a niche.”


Mr MacDonald believes commodities will never be a mainstream asset class for pension funds. “The benefits of commodities investment, for some funds, don't justify the time, effort and expense of the due diligence to investigate the viability of such a niche asset class,” he says.


“By value, for the bigger funds, it makes sense to consider commodities, but many are constrained by rules and regulations,” he adds.


“If funds investigate the small investable bit of a very huge market, they may decide to concentrate their efforts on more liquid assets in other markets.”