Commodity markets continued to gain in October as investor sentiment stayed positive as the likelihood of further rounds of quantitative easing gained momentum. In determining commodity prices over the long term horizon, fundamental supply and demand dynamics are expected to take priority over macroeconomic data as the global economy continues to mend.
Nelson Louie, Global Head of Commodities at Credit Suisse Asset Management said, “Fundamental factors drove much of the strong returns in October. While we expect fundamentals to play an increasingly strong role as economic conditions continue to normalize, the importance of global macroeconomic developments cannot be underestimated. While the exact implications of the efforts to aid economic recoveries taking place in developed economies are unclear, these actions suggest that the odds of greater than expected inflation over time have increased.”
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy added, “Indicators of economic growth and activity remain mixed. Emerging Market economies, as well as a small group of developed ones like Germany and Australia, have demonstrated robust growth, while growth in the US continues to improve at a slower pace than is typical of recoveries. Increased attention to quantitative easing and atypical support measures by the Federal Reserve was a key factor driving the dollar lower relative to most foreign currencies. As investors consider the perils of deflation, unexpected inflation may be a result of such stimulative measures. In an environment characterized by unexpected inflation, commodities have tended to prove their greatest worth.”
The Dow Jones-UBS Commodity Index Total Return rose 4.98% in October, bringing the year-to-date performance to 5.92%. Overall, 13 of the 19 index constituents increased in value. Agriculture commodities were pushed higher by tight supply levels and poor weather conditions – seen most prevalently in Cotton and Sugar. Economically sensitive commodities, especially those in the industrial metals complex, were mixed on varied macroeconomic data; Zinc increased by 10.06% while Aluminum and Nickel finished the month lower, down 0.71% and 1.87%, respectively. The Precious Metals sector, the best performing group year-to-date, had another positive month. As further quantitative easing measures moved closer to fruition, Gold and Silver rallied in anticipation of a weaker US Dollar. Gold and Silver both finished higher in October, returning 3.68% and 12.58%, respectively. The sector gained on heightened uncertainty regarding the global outlook, coupled with rising fears of global fiat currency debasement.
The Credit Suisse Total Commodity Return Strategy group periodically produces updates on relevant industry topics. For a copy of their latest white paper, “Capitalizing on Any Curve: Clarifying Misconceptions About Commodity Indexing”, please email firstname.lastname@example.org.
About the Credit Suisse Total Commodity Return Strategy
Credit Suisse’s Total Commodity Return Strategy has been managed for fourteen years and seeks to outperform the return of a commodities index, such as the Dow Jones–UBS Commodity Index Total Return or the S&P GSCI Total Return Index, using a quantitative commodity research process. Commodity index total returns are achieved through:
- Spot Return: price return on specified commodity futures contracts;
- Roll Yield: impact due to migration of futures positions from near to far contracts; and
- Collateral Yield: return earned on collateral for the futures.
As of October 31, 2010 the team managed approximately USD 6.8 billion in assets globally.
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