SPECIAL FEATURE 02/06/2005
Trading Commodities - The Alternative Investments?
Commodities is where it's at. Or so it would seem with the
big investor spotlight suddenly sweeping back and forth over the surging sector.
Commodities trading, although around since ancient times,
has long been considered more for the gambler than the serious investor,
especially with its markets shrouded behind terms such as "contango"
and "backwardation".
But with copper and crude oil hitting record highs this
year and a range of other commodities surging ahead, some analysts say it's time
the sector was seen as a legitimate asset class alongside stocks and bonds.
Michael Lewis, head of commodities research for Deutsche
Bank in London, recently published a 'how to' guide to investing in commodities,
a sector he believes will gain increasing prominence as an asset class over the
next few years.
"There appeared to be an information deficit among
investors towards commodities as an asset class," he told Reuters.
"This in part reflected more than a decade where commodities had little
chance to compete for investor risk capital, particularly where equity markets
were posting positive returns in every year between 1991 and 1999."
In the guide, Lewis said investors should "consider
commodities as analogous to a fine martini, in which a commodity index is the
vermouth and its addition to an investor's portfolio makes the whole thing
smoother and a little goes a long way."
Like any legitimate asset class, commodities also has its
own guru -- Jim Rogers, author of "Hot Commodities -- How Anyone Can Invest
Profitably in the World's Best Market".
Rogers, who is making the rounds on investment shows and
headlining international conferences, believes a bull market is under way and
that it will continue for years.
"Commodities have never gotten the respect they
deserve, and it's been something of a mystery to me why," Rogers writes in
the book.
Not everyone is convinced commodities have arrived as a
fully fledged asset class. G. Chandrasekhar, commodities editor for the Hindu
Business Line newspaper in Bombay, said he believed the markets were three years
away from being a true asset class.
"Still for commodities to become a true asset class
the markets will have to mature further in terms of flow of information and
research," he told Reuters. "The Indian stock markets took 24 years to
mature. The commodity markets have only now come out of hibernation."
THE RIGHT STUFF?
Fans of commodities also like to boast their investment is
not about paper but real assets that you can hold in your hand -- although in
reality few investors ever take delivery of the bets they make on futures
markets.
"Unlike financial assets, commodities are real assets,
also known as stuff," Robert Greer, a California-based product manager for
Pacific Investment Management Co., wrote in Deutsche Bank's commodity guide.
"Stuff which can be used, touched, seen, consumed.
Hard assets as opposed to paper assets. Not only are commodities a distinct
asset class but they are an important asset class in the world economy."
Greer said that unlike bond and stocks, commodities provide
good returns during inflationary times because of the windfall when resource
prices are expected to rise.
A true asset class also comes with a fair amount of hype.
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