When I was sitting in a cave, resting after a hard day of hunting, I would have been unlikely to have led a focus group on current investment opportunities.
However, there’s a good chance that at some point I considered trading some of my hunted and gathered assets for something I needed.
I might have considered agreeing to trade furs for charcoal and wood, or maybe even that shiny golden material that had been carved out of the rock. Welcome to the premier commodity market.
Midas touch: Commodities have a broad reach, from “hard” assets like gold and iron ore to “soft” assets like orange juice and wheat
What is a commodity?
Commodities have a broad scope, from “hard” assets such as gold and iron ore, to “soft” assets, such as orange juice and wheat.
Generally, these assets are consumable, in that they are used to make other things or to be consumed as food.
This makes them a nice asset as there will usually be a demand for them, 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?
The portrayed image of investing in commodities is often that of men in striped jackets yelling at each other, as Dan Aykroyd-Eddie Murphy’s 1983 film Trading Places perfectly illustrates. You don’t have to do this! For now, I will focus on “hard” commodities and deal another day with gold and soft commodities, as they have different characteristics that you should be aware of.
Most investors can simply invest in a commodity fund, which will give you exposure to a range of them. It’s a well-developed market, so you have a lot of choices.
However, if you have a clear view on a specific asset like oil or gas, then you can invest directly in a single commodity like copper or iron ore, but obviously you will have less diversity.
There is a whole range of managed funds out there, but you need to take a look at exactly what they are investing in, as it will not only be the price of the commodities itself that will affect your investment, but also any political issues like Russia’s behavior. concerning its Nord Stream gas pipeline.
And of course, any currency movement will also have an effect, as these assets are often valued in US dollars.
For investments in natural resources including mining, oil and gas, the JPM Natural Resources Fund covers all of these and is actively managed to take advantage of the moves, but will cost you 1.2% per annum.
For a cheaper route, the passive ETF market can be a good alternative, but remember this is only an index tracker.
Here, the Invesco Bloomberg Commodity UCITS ETF does the trick and has a management fee of just 0.19 percent.
Pewter hats, please.
Justin Urquhart Stewart co-founded fund manager 7IM and is president of investment platform Regionally.
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