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Alternative Market Briefing

Why buy-and-hold does not work in commodities

Friday, December 30, 2016

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Benedicte Gravrand, Opalesque Geneva:

Fund manager Mike Coleman shared his views last month on commodity trading and the markets' big picture, saying it is best to be short in commodities and that we are replaying the 1930s.

He spoke at the Opalesque Singapore Roundtable, after Gaurav Bansal, who manages the Salmon Global macro fund, commented on Eurex taking the lead in adding nonstandard products in its offerings (such as European processing potatoes), which was a good thing since "the standard products have become highly correlated with each other and currently have very compressed risk premiums."

Commodities are more a trading opportunity than an asset class, said Mike Coleman, who runs the Merchant Commodity Fund, a long/short discretionary commodity hedge fund launched in 2004, at RCMA Asset Management. Commodities are negative income producers, since "a commodity costs money to store therefore there is no expectation of a positive return on a buy-and-hold strategy."

At a broader level, he continued, everybody is becoming a trader. And "as commodity traders, we have grown up in a world where you're trading a thing which has no expectation of real returns. If you look at the last 200 years of real commodity prices, there's actually a declining trend in real prices. As economies become more sophisticated, the intensity of commodity use......................

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