The rewards for those who have invested in specialist commodities funds over the longer term have been huge. If you had put £1,000 in BlackRock Gold & General ten years ago, you would have made an impressive £6,000 profit.
The price of commodities such as oil and silver have all taken big hits in recent weeks. Oil prices slumped by a record $12 to $109 a barrel on May 5, before rebounding to $117.
The price of silver, which had risen by 175 per cent since last August, fell by 29.2 per cent in the first week of May to $35.07 per troy ounce. It was the biggest five-day plunge for the metal since 1975.
Fund manager Jeremy Grantham, of global investment firm GMO, recently predicted an imminent crash in commodity prices.
He argued the boom is unsustainable, pointing out that 100 years of decline have been reversed in the past eight years.
Last month, Tineke Frikkee, who runs investment manager Newton’s £2.6 billion Higher Income fund, said the mining sector had peaked.
She pointed to the recent disappointing production figures of Chilean-based copper mining group Antofagasta as a clear indication that the fortunes of mining firms are about to take a turn for the worse. She also argued that the rapid rise in copper prices meant mining companies were vulnerable to an equally rapid dip.
And billionaire hedge fund trader George Soros — best known for ‘breaking’ the Bank of England in 1992 by betting correctly that the pound would fall in value — sold large parts of his investments in silver and gold earlier this year.
Private investors are more vulnerable to the commodities roller coaster than they might think. Mining, oil and gas companies make up 34 per cent of the FTSE 100 — the list of the largest blue-chip companies in the UK.
This stake got bigger last month with the £38 billion flotation of Swiss-based Glencore, the world’s largest commodities trader.
A record £39.8 billion was ploughed into tracker funds in the first three months of the year - the most popular of which automatically follow the UK stock market.
Over a third of Legal & General’s UK 100 Index tracker is staked on commodities, including a fifth in oil and gas. ‘People would be shocked if they knew how much they are betting on commodities,’ says Alan Steel, chairman of financial adviser Alan Steel Asset Management.
But he believes fears of a repeat of the technology crash at the turn of the century are misplaced.
This confidence is based on the fact — despite their recent travails — that India and China will continue to grow over the long term and will rely on commodities such as oil and copper to do so.
China’s share of global energy demand is forecast to rise from 10 per cent in 2000 to 25 per cent in 2020.
Meanwhile, analysts at Capital Economics believe gold prices could rise from the current level of $1,537 per troy ounce to more than $2,000 by the end of 2012 because of its reputation as a haven for investors.
‘This is nothing like the dotcom bubble, which was built on nothing,’ says Mr Steel.
‘Growth in commodities is built on solid foundations, but has become overstretched because of speculators.’
He believes growth in commodities could continue for up to ten years, but predicts a dip in the shorter term.
‘Existing investors should just grit their teeth over the summer while new investors should drip-feed their money,’ he says.
He likes the funds JP Morgan Natural Resources and BlackRock Gold & General.
Tim Cockerill, head of research at financial adviser Rowan & Co Capital Management, believes commodities are still a good long-term bet.
‘Investors should be careful about not being too exposed to commodities and should consider taking some profits if they are,’ he says.
Popular equity income funds - which look for firms paying healthy dividends - are a good bet for those wanting to avoid commodities, adds Mr Cockerill, as most mining companies don’t pay dividends and are largely avoided by these funds. For the latest updates PRESS CTR + D or visit Stock Market news Today
No comments:
Post a Comment