| |
|
|
The commodities market was hit hard in May, but investors seeking exposure to this asset class can still expect healthy returns if they make the right choices. Dominic Schnider examines the volatile crude oil market and asks whether precious metals are indeed an investor’s safe haven.
Social unrest in North Africa and the Middle East has affected oil-producing countries, and the unpredictability of events unfolding in the region has been one of the main drivers pushing crude oil prices above USD 100 a barrel. Libya has lost more than one million barrels of crude oil production a day due to its ongoing civil conflict, and OPEC has yet to prove capable of replacing the production outages. In this environment, it appears that crude oil looks set to command a very high price in the near term.
In our view, the energy sector as a whole offers good commodities exposure to the more conservative investor, particularly in equities, as many energy companies offer attractive dividend payouts. Investors willing to accept a greater degree of risk may consider exchange-traded commodities (ETCs), which give direct exposure to higher crude oil prices. Investing in oil futures is a little more challenging. It exposes investors to such risks as contango, wherein the price of a futures contract trades at a premium to spot prices.
The value of oil lies in its ability to give investors exposure to emerging markets. These markets are the key drivers behind higher crude oil consumption, and their economies are likely to grow firmly in the future. In our opinion, this growth will result in higher crude oil prices. Despite the outlook for structurally higher crude oil demand, oil prices will remain volatile compared with commodities such as gold, which is very much seen as a safe-haven investment.
The market for precious metals has seen a consistent increase in prices over the last 12 months, but price performances within the sector have been uneven. The more cyclical precious metals such as palladium and silver have in fact outperformed gold. These metals, however, are susceptible to economic downturns, whereas gold, given its low industrial application at only 10% of supply, shines even in the dark – such as during periods of high uncertainty.
In general, precious metals are likely to offer investors protection against inflation – they are real assets and should rise in value with global inflation. In the current environment, we believe two investment opportunities stand out: |
| |
 |
Gold allows for investment diversification and gives a degree of comfort should other investments in a portfolio turn sour. |
| |
|
|
Platinum is relatively cheap and gives a nice exposure to economic growth, which is likely to persist in the coming months. A 20% upside should be easily attainable. |
| |
|
| |
|
An investment simulation experience
Ever wondered how you could invest USD 10 million and generate better returns than the money market rate? In January 2011, UBS held a Commodity Investment Simulation Experience event in Singapore. Participants constructed an investment portfolio using stocks, funds, Exchange Traded Certificates (ETCs), structured products and liquidity management instruments. After each “virtual” month, their portfolio’s investment choices (gains and losses) were analyzed.
"This was a great opportunity for participants to experiment with different investment solutions in various market conditions," said George Falkner, Global Head of Client Initiatives. “The virtual portfolio gave participants a safe environment to express their market opinion in commodities,” said Sharon Loh, Client Initiatives Singapore. “Overall the participants achieved positive |
|
| |
| |
|
| |
|
|
