We are all aware the price of petrol has risen sharply over
the past two weeks.
The prime reason has been the turmoil in the Middle
East-North Africa region (Mena) which accounts for 35% of
global oil production and the disruption could derail the
wider global recovery.
At this stage, the greater Western powers, while concerned,
are not interfering, letting them sort it out themselves.
There are always companies, individuals and fund managers
which see such disruptions as an opportunity to make money.
In particular, the trading in futures of commodities such as
gold, copper, agricultural products, crude oil and heating
oil has increased markedly.
At the end of 2010, hedge funds began shifting from short
positions to long positions in the market mostly because of
cheap money with near zero interest rates from bank deposits.
Commodities tracked by the Thomson Reuters/Jefferies CRB
index gained 11% in 2010, following a 23% gain in 2009.
New investments in commodity funds in 2010 were $US50
Buying shares directly in companies that trade in commodities
is subject to the company viability and market volatility.
It requires a considerable amount of money to get a
diversified exposure but commodities should only be one asset
class in an overall portfolio.
You have to own a dairy farm to be a holder of New Zealand's
largest commodity company, Fonterra.
Statistics provided from various sources (including
historical performance) show that commodities have lower
volatility than equities over a longer term.
Several commodity funds are available to New Zealanders, most
being hedge funds in Australian dollars that are not hedged
to NZ dollars.
Pathfinder Asset Management has a Commodity Plus fund that
was launched in May 2009.
It is a Pie fund (not a hedge fund) of just over $NZ25
As a Pie it has advantages for New Zealanders re taxation
compared with hedge funds in Australian dollars.
Pathfinder funds track the Deutsche Bank Liquid Commodity
Index Mean Reversion Plus Access index denominated in US
dollars but 100% hedged to the NZ dollar.
The index is a basket of six commodities of crude oil,
heating oil, gold, aluminum, wheat and corn.
The weighting of the index holdings is reviewed daily and
changes are made in response to market changes, not static
It can also change from 100% commodities to 100% cash as
The interaction between supply and demand leads to periods of
over and under valuations for commodities so the weights of
the individual commodities in the index will change
For example, back in 2008 when oil hit a historical high of
$US140 a barrel, the index had a comparatively low exposure
to oil but was heavily weighted to the metals of aluminum and
This is the mean reversion of overweighting the commodities
that are cheap and under weighting those that are relatively
expensive about the long-term mean.
As said above, the amount held in commodities in a portfolio
will depend on the size of the portfolio.
However, both are a good hedge against inflation and provide
stability due to their lower volatility.
To find out more about the Pathfinder Commodity Plus fund
contact your financial adviser.
• Peter Smith is an authorised financial adviser and the
principal of Kepler Group Otago Ltd. Email: firstname.lastname@example.org. A
disclosure statement is available on request and free of