Commodity Market Increased in December Due to Positive Fundamentals
New York, January 13, 2014 Commodities were higher in December due to positive fundamentals supporting the energy and industrial metals sectors.
Nelson Louie, Global Head of Commodities in Credit Suisse’s Asset Management business, said, “The 2014 global economy looks to be the most orderly in several years, centering on modest yet stable growth. We expect global growth to accelerate gradually in 2014, with most of the pick-up occurring in developed market economies, narrowing the growth gap with the Emerging Markets. We believe this steady uptick in growth may be beneficial to commodities.”
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, “Amid macroeconomic improvements in the US and abroad, correlations between commodities and traditional asset classes have been decreasing. We expect individual commodities to continue to be increasingly driven by fundamental factors rather than macroeconomic headlines. While broad macroeconomic trends continue to be important, they will likely impact asset classes in different ways. We continue to expect commodities to provide valuable diversification benefits going forward.“
The Dow Jones-UBS Commodity Index Total Return increased 1.24% in December. Overall, 11 out of 22 index constituents posted positive returns. Industrial Metals was the top performing sector, up 4.89%, as positive economic data out of the US burnished the demand outlook for metals. Energy increased 4.81%, with all sector components ending higher. WTI Crude Oil outperformed Brent Crude Oil as increased pipeline capacity came online which will transport more crude oil out of the US Midwest, helping to reduce the discount of WTI to other crude oil grades. Livestock declined 1.96%, led by Lean Hogs. Live Cattle increased slightly on expectations of lower feedlot inventories in the Southern Plains, supported by reports of strong cash markets late in the month. Agriculture ended the month 2.80% lower as rains across major exporter Argentina and other South American countries eased heat stress on Corn and Soybeans and weighed on the sector overall. China reportedly turned away a large shipment of US dried distillers grains (DDGs), a corn by-product, and more rejections are expected in coming weeks as Beijing imposes strict checks over an unapproved genetically-modified strain, which further weighed on Corn. Precious Metals decreased the most, down 3.71%. Investors continued to move away from gold as a safe haven after the US Federal Reserve announced that unemployment rates have improved enough for it to begin scaling back its bond-buying program from $85 billion of monthly purchases to $75 billion per month. Inflation expectations remained low.
About the Credit Suisse Total Commodity Return Strategy
Credit Suisse’s Total Commodity Return Strategy has been managed for 19 years and seeks to outperform the return of a commodities index, such as the Dow Jones–UBS Commodity Index Total Return or the S&P GSCI Total Return Index, using both a quantitative and qualitative commodity research process. Commodity index total returns are achieved through:
• Spot Return: price return on specified commodity futures contracts;
• Roll Yield: impact due to migration of futures positions from near to far contracts; and
• Collateral Yield: return earned on collateral for the futures.
As of December 31st, 2013 the team managed approximately USD 10.7 billion in assets globally.
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Certain risks relating to investing in Commodities and Commodity-Linked Investments: Exposure to commodity markets should only form a small part of a diversified portfolio. Investment in commodity markets may not be suitable for all investors. Commodity investments will be affected by changes in overall market movements, commodity volatility, exchange-rate movements, changes in interest rates, and factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Commodity markets are highly volatile. The risk of loss in commodities and commodity-linked investments can be substantial. There is generally a high degree of leverage in commodity investing that can significantly magnify losses. Gains or losses from speculative derivative positions may be much greater than the derivative’s original cost. An investment in commodities is not a complete investment program and should represent only a portion of an investor’s portfolio management strategy.
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