Big banks devise complex commodity investments
LONDON (Reuters) - Major banks are working to provide more complex commodity investment products that offer diversification after the asset class as a whole has tracked other markets recently, a seminar heard on Thursday.
Many investors have piled into commodities, often buying products linked to broad indices. This has helped balance their portfolios which had been weighted heavily to stocks and bonds.
But since the 2008 financial crisis, this strategy has failed to work as commodities have largely moved in line with other financial markets.
Banks are now offering more active strategies. These include financial instruments based on single commodities instead of a broad index. Other offerings target a specific part of the forward curve, while still others focus on momentum or use volatility, speakers told the S&P Commodities Seminar in London.
"It's stimulating investors to become much more active. We are seeing the passive long-only indices... losing some of their appeal."
Last year oil was a favorite single commodity while this year gold is taking center stage, said Michael John Lytle, managing director at Source, a specialist provider of exchange traded products. Next year, agriculture may become the hottest single sector, Grillo said.
"Clients themselves are getting much more intelligent about how they can benefit from an investment in commodities."
In some cases, the packages include algorithmic trading strategies, while others can offer a middle ground between fully active management and totally passive indices.
"It gives them the ability to override, to act as a circuit breaker, based on where the world is that day or that week and they can make the changes."
(Reporting by Eric Onstad)