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Alternative Market Briefing

Fund of hedge funds can broaden appeal of commodities with talented managers

Wednesday, October 05, 2011

From Precy Dumlao, Opalesque Asia:

The commodities sector has been the best performing major class over the last decade and has seen its biggest boom during this century. Despite the collapse in the price of natural resources during the 2008 financial crisis, the price of gold has risen steadily for nine consecutive years, according to Man Group’s latest paper on commodities titled "The Case of Commodities" that was released last week.

It is not surprising that commodities is one of the most favorite asset classes amongst investors and fund inflows into the sector have jumped, particularly in gold, oil, natural gas, industrial metals and agriculture.

However, Man Group says the asset class could be further enhanced by fund of hedge funds (FoHFs) by selecting the most talented managers in the hedge fund arena and combining complementary strategies to maximize risk-adjusted returns. Such strategy could also provide more comprehensive diversification across the asset class than commodity indices, the study adds. FoHFs managers can utilize niche performance by adding additional segments, like power and emissions rights.

Based on historical observations, it is likely that commodity prices will continue to exhibit much greater volatility and longer price cycles than those associated with traditional asset classes. However, a long/short approach to commodities investment can help to address ......................

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