Commodities 

Guide to investing in commodities

  • Describe the correlation between commodities and traditional asset classes and how they have changed over time.
  • List the outlook for oil and physical gold in 2019.
  • Identify how much exposure clients should have to commodities in their portfolios.
CPD
Approx.60min
Guide to investing in commodities

Introduction

Commodities can play a useful role in client portfolios as diversifiers.

Traditionally, gold has been known as a so-called 'safe haven' for investors, given how it behaves in relation to traditional assets.

Certainly, with so many geopolitical risks on the horizon, investors might want to consider how they are allocated to commodities, whether that is oil or gold.

As Ed Kuczma, co-manager of the BlackRock Latin America Investment Trust, notes: "Commodity prices generally ended 2018 on a downward trend, fuelled by concerns over Chinese growth.

"2019 has seen subtle improvements in demand supported by recent expansion in Chinese PMI data."

This guide looks at the correlation between commodities and traditional asset classes, such as equities and bonds, particularly during times of stock market volatility or heightened geopolitical tensions.

It also considers what the outlook is for physical gold and where oil prices are headed this year.

Finally, how much should clients allocate to commodities in their portfolios, given the political and economic backdrop?

This guide is worth an indicative 60 minutes of CPD.

Contributors to this guide: Mihir Kapadia, chief executive of Sun Global Investments; Terence Brennan, portfolio manager of the Lazard Commodities fund; Jake Hanley, marketing director of Teucrium Trading; Caroline Bain, chief commodities economist at Capital Economics; Robert Johnson, chairman and chief executive of Economic Index Associates; Geoffrey Cher, business development lead at Digix; Juan Carlos Artigas, director of investment research at the World Gold Council; Adrian Ash, director of research at BullionVault; Robert-Jan van der Mark, co-manager of the Kames Diversified Growth fund; Lyxor Asset Management; Catherine Braganza, senior credit analyst at Insight Investment; Chris Teschmacher, multi-asset fund manager at Legal and General Investment Management; Ben Kumar, investment manager at Seven Investment Management; James de Bunsen, portfolio manager at Janus Henderson Investors; Gregory Perdon, co-chief investment officer at Arbuthnot Latham; Patrick Connolly, a chartered financial planner at Chase de Vere; Mark Lacey, head of commodities at Schroders; Peter Elston, chief investment officer at Seneca Investment Managers; Aneeka Gupta, associate director of research at WisdomTree; David Scott, investment manager at Andrews Gwynne; Teucrium Trading.

Saloni Sardana and Victoria Ticha are features writers at FTAdviser and Financial Adviser

In this guide

CPD
Approx.60min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. According to Ms Bain, what was the turning point in the relationship between commodities and traditional assets?

  2. Gold investment demand has grown, on average, by what percentage each year since 2001?

  3. 2018 marked how many consecutive years of net purchases of gold by central banks, according to Mr Artigas?

  4. The Opec+ Group agreed to cut production of oil by how many barrels per day until the end of 2019?

  5. Mr Teschmacher says what could see oil prices fall to below $25 a barrel?

  6. Mr de Bunsen says the following: "In terms of allocation sizes, gold can be volatile and its correlation to equities is variable, therefore we tend to hold more than 5 per cent in our portfolios." True or false?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Describe the correlation between commodities and traditional asset classes and how they have changed over time.
  • List the outlook for oil and physical gold in 2019.
  • Identify how much exposure clients should have to commodities in their portfolios.

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