More and more investors find commodities and energy exiting places to put their money.
Commodity prices are in general not correlated with other asset classes, as prices are determined by supply, demand and inventory levels. This contrasts stock and bonds, which are mainly priced on an expected future, discounted cash flow. A portfolio, consisting of stocks and bonds, will thus have its risk reduced if an exposure towards commodity prices is added.
Certain types of company stocks are influenced by commodity prices (oil companies and oil price; gold miners and gold price etc.). Some investors may choose to invest in the commodity, as opposed to company shares. An alternative investment strategy could be to trade stocks influenced by commodity prices, along with the relevant commodity (e.g. go long bulk shipping shares, whilst shorting bulk freight derivatives). This kind of trade would be similar to trades in stock derivatives in combination with stocks. Such strategies are suited for bets on differentials between share values and commodity prices, or to hedge investments made in a stock, by trades in the underlying commodity.
An additional motive for commodity investments is that it could be a suitable hedge against inflation and a weakening USD. This will in turn protect relative purchase power of an investment portfolio (relevant for pension funds and the like). In economically turbulent times, many seek to invest in precious metals like gold and silver, considered to be "safe harbors".
DNB Markets offers alternative ways to invest in commodity and energy: Retail clients:
- Exchange Traded Funds (ETF), which could be traded on DNB Markets' Internet trading platform for stocks
- For amounts exceeding a certain size, DNB Markets offers clients freight-, power- and a selection of oil products derivatives
Corporations: In addition to ETF, businesses could trade commodity derivatives such as swap-agreements, options, futures and forwards
Clients do not need to become an exchange member of the different exchanges and clearinghouses, as DNB Markets would be the counterparty in all transactions. The pricing, administration and settlement of commodity derivatives are similar those of FX/Interest products offered by DNB Markets.
Please contact us for further information on investments in commodity derivatives.
