- Most investors can only invest in commodity funds, and there are many
- Investigate any potential funds carefully as a variety of factors can affect prices.
Sitting in a cave, relaxing after a long day of hunter gathering, it is unlikely that I would lead a discussion group about current investment opportunities.
However, there’s a very good chance that at some stage I may have considered swapping out some of my hunting and gathering possessions for something I needed more.
I would have considered agreeing to trade some of the fur for coal and wood, or perhaps that shiny gold-colored stuff that had been dug out of the rock. Welcome to the first commodity market.
Midas Touch: Commodities have a wide reach from ‘hard’ assets such as gold and iron ore to ‘soft’ ones including orange juice and wheat.
What are Commodities?
Commodities range from ‘hard’ assets such as gold and iron ore to ‘soft’ ones including orange juice and wheat.
These assets are generally consumable, in that they are used to make other things or to be consumed as food.
This makes them an interesting asset because they are usually in demand, and we can often follow this in the news as they are affected by weather, transportation or even political issues.
So what should we do?
Commodity investing is often photographed of men in striped jackets yelling at each other, as portrayed more fully in the 1983 Dan Aykroyd-Eddie Murphy film, Trading Places.
you do not have to do that! For the moment I will focus on ‘hard’ items and another day deal with gold and soft items, as they have a few different characteristics that you should be aware of.
Most investors can only invest in commodity funds, which will give you exposure to a range of them. This is a well developed market, so you have a lot of options.
However, if you have a clear view of a specific asset like oil or gas, you can invest directly in a single commodity like copper or iron ore, but you will obviously have less diversification.
There is a range of managed funds, but you should really check what they are investing in as it will not only be the price of the commodity that will affect your investment, but also any political issue, such as Russia Behavior about the Nord Stream gas pipeline.
And of course any currency movement will also have an effect as such assets are often priced in US dollars.
The JPM Natural Resources Fund for investing in natural resources, including mining, oil and gas, covers all of them and actively manages to take advantage of movements, but will cost you 1.2 percent per year.
For a giveaway, the passive ETF market can provide a good option but remember that it is just a tracker of an index.
Here the Invesco Bloomberg Commodity UCITS ETF fits the bill and has a management fee of just 0.19 percent.
Tin hat, please.
Justin Urquhart Stewart co-founded fund manager 7IM and is the president of the regional investment platform.