Unless you want to hold some gold bullion in a safe or trade the international commodity futures market, historically, it has been very difficult to get investment exposure in global commodities.
This has changed with the introduction of Exchange Traded Certificates over Rogers International Commodity Index® (RICI®) EnhancedSM Indices. The Indices are diversified investments offering exposure to 36 different commodities. The Certificates can be held over a global index offering exposure to all 36 commodities or in sub-indices grouped into metals, energy and agriculture. Commodities included in the Indices are as varied as live cattle, rubber, tin, palladium and coffee.
The Certificates offer the benefit of a currency hedged exposure to the Indices, which are low cost and will trade on the ASX. This type of investment is a rapidly-growing segment of the Australian sharemarket as local investors look to gain more global exposure and diversify risk away from single company or market investments.
What Are the Benefits of the RICI®s EnhancedSM Indices?
A superior index concept: the weighting of the commodities included in the RICI®s EnhancedSM Indices is fixed every year. Each month, the commodity weightings are re-adjusted back to their initial weight. The potential advantage is that commodities which are rising sharply are brought back to their initial weighting and commodities which have fallen behind gain weight. This has seen the RICI®s EnhancedSM Indices outperform other commodity indices (ie. the CRB index).
Other benefits include:
- Portfolio diversification – commodity prices have historically had a low to negative correlation to equities and bond prices.
- Protection against inflation risks.
- Australian dollar hedged – commodity prices have historically had a positive correlation with the Australian dollar – commodity prices are generally denominated in US dollars.
What are the Risks?
- Underperformance of commodity prices compared to other asset classes.
- Currency translation risk if the Australian dollar does not track commodity prices.
- Issuer risk through third party involvement of RBS Australia.
- Supply of many commodities has not kept pace with the demand from burgeoning emerging economies like China and India.
- Significant lag time before new supplies of many commodities can be provided due to lengthy exploration, production delays and/or planting/breeding of additional agricultural commodities.
- While investing in commodities can be cyclical, commodity bull markets generally run over a very long timeframe – 14 years +
- Meanwhile, governments around the world are pursuing highly inflationary policies due to high levels of debt.
- Commodities have historically provided an inflationary hedge.
For more information call: 02 6686 4144.
DISCLAIMER – The information provided here is general advice only, and has been provided without consideration of any person’s risk appetite, investment objectives, financial situation or needs. Those acting upon such information without first consulting their investment adviser does so entirely at their own risk. This does not constitute an offer or invitation to purchase any securities or derivatives contract and should not be relied upon in connection with any contract or commitment whatsoever.