Whenever Wall Street comes up with a new product it behooves Main Street to be skeptical about the hype. In this article we are going to look under the hood of the latest product to get the UK financial services market in a tizz: the multi-asset fund. Whilst there is nothing new in having a balanced fund of bonds and equities, there are more and more funds being launched that offer access to a broader range of asset classes, including: private equity, commodities, bonds, equities property, and hedge funds. What is also new about these products is the low cost structures that they are being offered in.

Low cost structures have become a reality as the result of consumer demand. After years of being hammered by large fees these have finally come under the microscope as fund values have plummeted. It seems a bit rich to pay someone 3% per annum to manage the dramatic decline of your assets. The advent of Exchange Traded Funds and Exchange Traded Notes are the other driver behind multi-asset funds. Now fund managers can use these listed tools to access a broad range of asset classes. Indeed the Gold ETF is though to have boosted the price in gold as it was formerly quite tricky to invest in without purchasing the physical product. (more…)

Commodities are an interesting asset class right now for a number of reasons. Commodity investing is a good way to play both offense (global economic recovery) and defense (a hedge for your portfolio against rising future inflation and a falling dollar). They are also a great portfolio diversifier which can reduce the overall risk (volatility) of your portfolio.

Playing Offense: The global economic rebound is coming, and commodities will benefit.
Most of the economies in the world are currently in severe recessions or have significantly lower economic growth than 2 years ago. There are now many signs that the US economy and many other economies have bottomed out and are starting to show signs of life again. US economic growth has improved from a -6% rate over the winter to a -1% rate in the second quarter of 2009 and it will likely show positive economic growth in the second half of 2009. As the economies around the world go from serious recessions to positive economic growth over the next 2 years the demand for commodities will increase and their prices will go up. This global economic growth is likely to be led by China and many other emerging countries which tend to be commodity-based or commodity-heavy economies. (more…)

The chorus singing of the need to separate commodities from broader views of market movement appears to be growing again. It’s possible to separate this into “supply constraint” and “Asia rising camps”, but in general it is recognized that both come into play. Supply constraint singers realize that the mineral commodities sector was under capitalized for a long period beginning about 1980. Asia rising tunes increasingly look back to the last decade to recognize that mineral prices were already tied to Asian growth in the 1990s. Our contention that a “decoupling” of metal prices from western markets has taken place stems from Asian growth, while our expectation of continued historically high prices is based on supply constraint. The two need to be weighed against a second post-Crunch decoupling to gauge timing.

Germany, France and Japan all recorded small but positive economic growth in Q2. Canadian housing sales in July were the highest ever recorded. While we do view these stats as part of a post-Crunch bounce partly related to government generated stimuli, the early awakeners are hardly random. Germany and Japan have high personal savings rates. France and Canada (especially the latter) have banking systems that were largely unscathed by the Debt Crunch. A large portion of the Canadian housing turn-over is first time buyers who had been scared away from the market but now feel they should take advantage of low interest rates. These are the industrialized economies that are best placed to recover from the impacts of a credit squeeze because they have cash or available credit, though Japan and Germany need to work on domestic consumption. (more…)

To get an appreciation of how important commodities are to our daily lives, all you need do is take an inventory of all the products you use everyday made from commodities. You can start your list with the computer you’re reading this article on. Not only is it made of several commodities but in order to power it up and bring information to you over the internet needs commodities.

Look around your home at all the various devices made from or that work due to commodities and your list continues to grow. Not only do they make devices run, they also make us run as the foods we eat are commodities. Much of our day is spent at work and regardless of where you work practically everything you do requires commodities.

Those of us that live in the developed economies of the world owe much of our modern conveniences a big thank you to commodities, without them our lives would be much different. It’s also important to remember there are a few billion people in the developing economies that live much less modern lives than those in the developed economies.

People in developing economies live simpler lives but are starting to be introduced to all the various products those in the developed economies enjoy. They have a growing hunger for them and in the future more will have these products.

Commodities do not have infinite supply and every year we consume enormous amounts and this will only grow as those in the emerging economies modernize. As one starts to appreciate the realities of how important commodities are to our lives then consider there are many ways for investors to include these important assets in their portfolios.

One can invest through the futures markets that can sometimes scare people because they seem complicated. To learn more there are several courses put on by the exchanges that trade commodities. Exchange traded funds are another option, they are kind of like a mutual fund that invests in commodities and tracks the movement in commodity prices. One can also look at investing in publicly traded companies focused on commodity production, development and exploration.

There are plenty of options to learn about the various investment opportunities. Education is crucial, so do your homework, this is important no matter what investment you’re considering. Commodities are essential to our daily lives and with billions of new consumers, starting to enjoy the many products made from or that run using commodities, will provide decades of strong demand in the future.

As you understand how integral commodities are to our daily lives and consider demand growth from emerging economies it becomes much clearer commodities are also a very important investment class to consider. Long term supplies for several commodities are in poor condition due to many years of under investment that has seriously impaired long term supply. New consumers will increase demand and with the relatively weak supply chains makes a strong argument that prices will be much higher in the future.

Doing an inventory of all the products, we use made from or that need commodities to make them run, will make it clear how important they are in our lives. With many new consumers competing for commodities that have relatively weak supply will drive prices much higher. These are important reasons to keep in mind when considering commodities as an investment.