In today’s turbulent investment climate there are few certainties.
Developments in emerging markets seem destined to continue.
Combined with increases in global per capita incomes, increases in the global population and lengthening life expectancies, Mr Hambro said he was confident that investors were likely to continue to see a structural increase in commodities demand.
As demand grows, he said the supply-side of the equation continues to struggle to keep up for those commodities that suffer from supply challenges, such as copper.
Mr Hambro said: “While we would expect that there are likely to be periods of challenged performance through the commodities cycle, as we have experienced over the past few years, this is a long term trend that we believe clients may be remiss to exclude from their portfolio.”
Initially when talking about Commodity investments an adviser should try to understand their client’s appetite for risk, liquidity requirements, volatility, returns and investment time horizon.
These factors are likely to determine what type of exposure a client may wish to take to commodity markets.
For instance, Mr Hambro said a client with a relatively short investment time horizon (six to 12 months), demand for highly liquid products, low risk appetite and tolerance for volatility may be better suited to investing in a product that tracks either the DJ UBS Futures index or the S&P GSCI Commodities Futures Index or physically backed precious metals ETFs.
Mr Hambro said BlackRock offered highly liquid exchange traded products through the iShares platform such as the GSCI Dynamic Roll Commodity Swap or the iShares Physical Gold ETC.
Mr Hambro said a client with a longer investment time horizon (three to five years), with demand for leverage to rising commodity prices, highly liquid products, higher risk appetite and tolerance for volatility may be better suited to an equity product that invests in the commodity producers.
He said: “A product that invests in a single sector, like the BlackRock World Mining Trust, is likely to have a higher degree of risk but potentially higher returns.”
For a client with a higher risk appetite but demand for broader exposure across the commodities market and a need for income generation, Mr Hambro said a more diversified equity product such as the BlackRock Natural Resources Growth and Income fund may better suit their needs.
