Foto: ImUnicke. El mensaje de la FED constituye el mayor apoyo a los activos de riesgo, según Axa IM
Following the sell-off of all asset classes post the FOMC meeting, AXA IM notes that a substantial part of the news is priced in and markets will shift toward a kind of ‘business as usual’. “It seems that the Fed is more confident with regard to the growth backdrop and thus convinced that tapering is justified. We (and the consensus) have a marginally less optimistic view and think markets will in fact continue to struggle over which route to follow – ‘fading easy money’ or ‘weaker (US) recovery’”, signals Axa IM in its July Investment Strategy Report.
Such uncertainty will most likely continue to weigh on the mood of investors in the near term
AXA IM has long held the view that any adjustment to a new regime is usually accompanied by higher volatility, as investors adjust to a new equilibrium. This is exactly what they have seen in the course of the month of June and is presumably best illustrated by their in-house risk appetite barometer (RAB), which moved into mildly negative territory in June but recouped de facto all of the lost ground at the beginning of July.
The combination of lower stock markets and marginally better earnings pushed the overall valuation metrics for the MSCI World down to 16.3x, versus 16.5x last month.
“Overall, we think that some more silver linings have appeared on the horizon and consequently suggest raising the equity weighting back to overweight as the cyclical head winds fade”, remarks the asset manager in its report. “If anything, the very clear message from the Fed Chairman, who reiterated the conditionality for starting the tapering, remains in our view the strongest support for risky assets (and a headwind for fixed income in the longer run).”
Axa points out that the ‘sustainable improvement’ in the labor market will be the acid test for the FOMC in the months to come. Against this backdrop, the liquidity withdrawal should come at a time when the underlying economic momentum is robust (even though not brilliant) enough to bridge the gap between the liquidity-driven market rally and an earnings push With regard to fixed income, Axa IM suggests remaining prudent over the longer-term horizon despite the recent substantial rise in yields. “We view the Fed tapering as the beginning of a normalization process which will distinguish three different episodes: i) less liquidity injection, followed by ii) a period of relative calm (mid-2014 to end 2014), followed by iii) the higher short rates in 2015.”
From a more tactical perspective, Axa IM suggests moving back to neutral as far as safe haven bonds are concerned, as the Fed’s tapering talk will most likely calm down.
Foto cedidaIan Warmerdam, Director of Technology Investment at Henderson Global Investors.. Silver Surfers
Tech is no longer solely a domain of the young.
The world’s population is becoming older, faster. Among developed nations, 24 per cent of Japanese and 21 per cent of Germans are aged 65 and older. In the US, this demographic is projected to rise to at least 18 per cent by 2030. Similarly, developing countries such as China, Brazil, Chile and Peru are also seeing demographic change: as their economies become more developed there is a shift to lower birth rates and longer life expectancy. Contrary to popular belief that older consumers tend to shun technology, this growing and increasingly significant demographic is actually starting to embrace it.
Going online
In the US, a Pew Internet study last year found that for the first time half of adults aged 65 and older are online, although older age groups tended to have a narrower range of online activities. Over 65s were using search engines and email, but they were less likely than younger users to use social networks or bank online. In the UK, an OFCOM study showed that in 2009 internet take-up appeared to be driven by older age groups.
One form of mobile computing that has expanded into different demographics is the tablet. Tablets are not just used by the young, well-off and tech-savvy but increasingly also by older and middle income earners. According to research by global consulting firm McKinsey & Co. “tablets have changed the technology landscape for seniors”.
In terms of usability tablets’ touch-screen technology is a more user friendly interface, as it does away with keyboards and fiddly buttons. Apple’s iPad has intuitive appeal for older consumers who may have impaired fine motor skills. Meanwhile, the iPhone’s background noise suppression technology has garnered favour with the hard of hearing.
Growth areas
Online shopping is also a growth area for the older consumer, in particular those with mobility problems. Recognising the growth potential of this consumer segment, in April Amazon launched its ‘50+ Active and Healthy Living Store’, which offers nutrition, wellness, exercise and fitness, medical, personal care, beauty and entertainment items for customers in the 50+ age range.
E-books are also popular; reducing the need for trips to the book shop or library as thousands of books are now at their fingertips and reading is easier on the eyes as the font size can be adjusted.
Another sector that is benefiting from advances in technology is healthcare. Adoption of wireless remote monitoring devices or ‘telehealth’ technology will rise six-fold to more than 1.8 million people worldwide in four years, according to research by InMedica. A tablet can provide reminders for medication and doctors’ appointments, as well as messaging and video access to caregivers and family members. Healthcare providers are partnering with software developers: for example, in the UK the NHS uses Microsoft’s HealthVault application, which allows patients to securely store and share health information online.
Increasingly, technology is conquering new demographics and helping improve our lives today.
Ian Warmerdam is Co-Manager of the Henderson Global Technology Fund
Wikimedia CommonsFoto: Dmcccomms. Dubai Multi Commodities Center busca convertirse en la torre comercial más alta del mundo
The Dubai Multi Commodities Centre (‘DMCC’), announced on Wednesday its plans to build the tallest commercial tower in the world as part of its expansion plans designed specifically for large multi-nationals.
Ahmed Bin Sulayem, Executive Chairman of DMCC, said,”When we announced the plans to build Almas Tower in 2002, the Middle East’s tallest commercial tower and DMCC’s headquarters, the entire office space across 63 floors sold out to DMCC end users, mostly in the diamond business, in just a few hours. The world’s tallest commercial tower and the DMCC Business Park are the next natural steps to ensure we continue to welcome companies to the free zone as demand grows – particularly large regional corporations and multi-nationals – in the near future. The initiative is designed to further strengthen Dubai’s position as the global hub for commodities trade and enterprise. Over the past four years DMCC has attracted more than 4,000 new companies to the Free Zone – 90% of which are new to Dubai. In 2013 we have accelerated this growth, with an average of 200 new companies joining DMCC every single month. This increased demand further demonstrates not only the confidence in DMCC and Dubai, but also underlines the need for new commercial space.”
Currently in the concept design phase, the DMCC Business Park and the world’s tallest commercial tower will cater to large corporations and multi-nationals that require significant floor space to buy or rent. The Business Park will comprise of 107,000 square metres of premium commercial and retail space.
Today, almost 7,000 members from start-ups to multi-nationals operate from the DMCC Free Zone. To confirm its confidence in the Free Zone’s future growth, DMCC made a public commitment in early 2011 that it would reach 7,200 member companies by the end of 2013, a target that is expected to be reached in the very near future.
In 2005, DMCC launched a ground breaking gold Sukuk, raising US$ 200 million to help finance the construction of its commercial towers. At the time, the Sukuk was assigned an “A” long-term and “A-1” short-term rating by Standard & Poor’s Rating Services and was oversubscribed. The Sukuk allowed investors to receive payment denominated in gold bullion as an alternative to US dollars. Despite the onset of the global financial crisis, the Sukuk was repaid fully and on time.
With 65 mixed-use commercial and residential towers and over 180 retail outlets in operation, there are currently over 65,000 people working and living within the development. On average, DMCC welcomes over 200 companies per month to its Free Zone, more than 6 companies per day – over 90% of which are new to Dubai.
Wikimedia CommonsFoto: Ashok Prabhakaran . Los ETFs y ETPs registran en junio las primeras desinversiones netas en dos años
Globally ETFs and ETPs had outflows of US$3.98 billion in June 2013,their first net outflows in over two years. Assets invested globally in Exchange Traded Funds (ETFs) and Exchange Traded Products (ETPs) are at US$2.04 trillion, down from their all-time high of US$2.13 trillion at the end of May 2013, according to preliminary figures from ETFGI’s Global ETF and ETP industry insights report for first half 2013. There are now 4,849 ETFs and ETPs, with 9,878 listings, assets of US$2.04 trillion, from 209 providers listed on 56 exchanges. Year to date assets in ETFs and ETPs have increased by 4.9% from US$1.95 trillion to US$2.04 trillion.
Average daily trading volumes in ETFs/ETPs in June were US$92.2 billion, representing an increase of 31.1% from May and the highest level since October 2011.
“Market uncertainty surrounding the future of QE programs and volatility in the markets caused investors to withdraw US$3.98 billion from ETFs and ETPs in June” according to Deborah Fuhr, Managing Partner at ETFGI.
Fixed income ETFs/ETPs experienced the largest net outflows with US$7.1 billion, followed by commodity ETFs/ETPs with US$3.8 billion, while equity ETFs/ETPs gathered net inflows with US$4.8 billion.
Year to date through end of H1 2013, ETFs/ETPs have seen net inflows of US$103.9 billion, which is slightly lower than the US$107.2 billion of net inflows at this time last year.
In June 2013, equity ETFs/ETPs saw net inflows of US$4.8billion. North American equity ETFs/ETPs gathered the largest net inflows with US$6.9 billion, and then developed European equity indices with US$3 billion, while emerging market equity ETFs/ETPs experienced net outflows with US$4.9 billion.
Fixed income ETFs/ETPs saw net outflows of US$7.1 billion in June 2013. Inflation ETFs/ETPs experienced the largest net outflows with US$2.1 billion, followed by high yield with US$2 billion, and emerging market bond with US$1.8 billion, while government bond ETFs/ETPs gathered net inflows with US$1.1 billion.
In June 2013, commodity ETFs/ETPs saw net outflows of US$3.8 billion. Precious metals experienced the largest net outflows with US$3.2 billion.
Vanguard ranks 3rd in terms of ETF/ETP assets, is ahead in asset gathering with US$28.9 billion in net inflows year to date, and was the only one of the top 5 providers to receive net inflows in June. iShares ranks 1st in terms of assets, had net out flows of US$7.9 billion in June, and net inflows of US$23 billion year to date. SPDR ETFs ranks 2nd in assets, had net out flows of US$2.4 billion in June, and net outflows of US$6 billion year to date. Powershares ranks 4th in assets, had net out flows of US$586 million in June, and net inflows of US$7.16 billion year to date. DB X trackers ranks 5th in terms of assets, had net out flows of US$751 million in June, and net inflows of US$9 million year to date.
S&P Dow Jones has the largest amount of ETF and ETP assets tracking its benchmarks with US$563 billion, reflecting 27.5% market share; MSCI is second with US$319 billion and 15.6% market share, followed by Barclays with US$188 billion and 9.2% market share.
Wikimedia Commonshttp://hint.fm/wind/. BIGdata: Tres libros que nos enseñan a cambiar la forma de visualizar el mundo
Three new books about data visualization show the world in graphic form, thanks to recent advances in presenting big data. A video by The Economist featuring Kenneth Cukier, data editor at the magazine, shows how to depict information in new ways and look at the world through data visualization.
Some examples of this visualization show the impact of improvised explosive devices in the Afghanistan War, the earthquakes suffered globally during the 20th century or a map of winds of the United States. The three books are: “Facts are Sacred”, by Rogers Simon, who worked at The Guardian but who now works for Twitter; “The Infographic History of the World” by James Ball and Valentina d’Efilippo shows the history of humanity from the big bang through quantification and the visual display of that information; and “Data points: visualization that means something” by Nathan Yau aimed for the professionals who have to work daily with big amounts of data making you think of entirely different ways to present data. This book shows a Wind Map (interactive through the link) made by two people at Google who were able to show data, almost in real time, about the intensity of wind flows through white lines and how they change. It does not take much to think about ways in which these new tools can be used to analyze and support investment decisions.
Wikimedia CommonsFoto: Zhang Gui
. ¿Puede el fin del QE desacelerar los retornos asiáticos? Parte I
When your economy is depressed, with high rates of unemployment, and interest rates at close to zero, you need aggressive monetary policy to keep activity ticking over. And what you say you will do matters just as much as what you actually do. Thus, the markets became very skittish when first U.S. Fed Reserve Chairman Ben Bernanke and then Japanese Prime Minister Shinzo Abe made public statements from which speculators inferred they were going to be less aggressive in monetary stimulus than had been expected.
Lowering peoples’ growth expectations and causing them to bid up the U.S. dollar is about the worst combination for Asian equities historically
First, Bernanke spoke about tapering off quantitative easing (“QE”). What he meant, or what he actually said, was that quantitative easing would taper off if U.S. growth continued to improve. All well and good, but the markets are not yet “sold” on the idea that U.S. growth is going to be all right. After all, we have just had a round of tax hikes and also some spending cuts—surely that means there is downside risk to anyone’s forecasts of the economy? Then, Abe spoke. Speculators were already selling Japanese equities after Bernanke’s comments, for fear that if the U.S. were thinking of withdrawing stimulus, what hope would there be that Japan would persist with its own money-printing experiment? Abe exacerbated their concerns because he said he was aiming for 2% real growth and 3% nominal growth, the difference, 1%, being inflation. Yet, in the market, inflation expectations were already above 1% and it is primarily through those expectations that monetary stimulus gains its force. Speculators, hearing that the authorities were planning to be less aggressive than expected, caused another abrupt sell-off in Japanese equities. If that were not enough, we then had a second round of Bernanke’s public comments that tied withdrawal of monetary stimulus to a fall in the unemployment rate to 7%. Now, 7% is hardly full employment—that is probably closer to 5% or 6%; in addition, so many people have left the workforce recently, that the “true” unemployment rate may be much higher than stated. Indeed the U.S. unemployment situation may have improved only marginally since the trough of economic activity.
So, in a matter of weeks, these two policymakers managed to dash the hopes of faster global growth and rising prices of goods and assets that were being built into the markets. Investors now fear that as soon as growth starts to pick up, central bankers will move to prevent it from accelerating, even though the economy is rising from a depressed base. The situation was further exacerbated by spikes in interbank rates in China that are a symptom of the government cracking down on domestic liquidity in an attempt to rein in credit growth. Whilst this tightening may be desirable, its timing couldn’t have been worse, given the comments from the U.S. and Japan. Indeed, it looks as if global monetary policy chiefs all “got out of the wrong side of the bed” this week. So, speculators sold everything—bonds, equities, gold, and bought U.S. dollars.
Some of the moves in the market were, in the short run at least, a little puzzling. Falling equity markets make sense in a world of “premature” monetary tightening. So does a rising U.S. dollar. But rising bond yields? Yields may well rise in the short run as part of a run to cash, but if growth does indeed slow, they will fall back down again, and, one assumes, the Fed will then need to launch QE 4, 5, 6… and 7. So, we are in a bit of a holding pattern here. Which is right? Bonds or equities? If growth is indeed picking up, the bond moves seem appropriate but equities would surely enjoy an environment of faster growth! If growth is about to disappoint, then equities are right and yields will surely fall back down—even then, the likelihood of further stimulus to correct the premature tightening would help cushion equity markets.
Very occasionally, global events like these may offer up a few bargains along the way
Now, what does this mean for Asia? Historically Asian markets have done well in periods of a weaker U.S. dollar and faster growth, so lowering peoples’ growth expectations and causing them to bid up the U.S. dollar is about the worst combination for Asian equities historically. And I do not think that Asia’s relation to global markets has changed significantly enough to nullify this past relationship. However, there are reasons to think that the effects on Asia’s equity prices may be a little more muted this time. First, valuations are already low—we have gone through a period of weak growth and a slightly appreciating U.S. dollar for the past two years. The impact on the markets has been to cause Asia’s price-to-earnings to fall close to its historical lower bound, even as earnings are depressed by cyclically weak margins. Consequently, Asia’s discount to the U.S. has widened to about 30%. In addition, Asia’s economies are in reasonable shape in regards to external exposure—only Australia, India, and Indonesia run external deficits—and levels of external currency debt of both sovereigns and companies are substantially less worrying than they were on the eve of the 1997 Asian crisis. So, Asia’s economies are not as stretched as they were going into the U.S. dollar strengthening in the late 1990s and its equity markets, particularly North Asia, are priced quite reasonably.
In the short run, the reaction of the markets may have been induced in part by fears of the past. Nevertheless, Bernanke and Abe did no favours for Asia with their recent comments and China’s tightening will slow growth and dampen expectations further. However, for us at Matthews Asia, we are not going to try and guess the short-run fluctuations of GDP growth, nor will we try and anticipate the nervy reactions of short-run speculators or attempt to predict the future public statements of global policymakers. As always, we will continue to look much longer-term and try to identify the companies that will themselves sail through the short-term changes in economic policy and adapt themselves to the evolving aspirations and demands of their Asia customers. Very occasionally, global events like these may offer up a few bargains along the way.
Robert Horrocks, PhD, Chief Investment Officer and Portfolio Manager Matthews Asia
The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.
Wikimedia CommonsBy LunarGlide+ 5 from Nike Running. Renewed or Print
Continuously reinventing and taking advantage of opportunities offered by the advancement of technology is essential for companies to remain at the forefront. Some firms in an industry as traditional as textiles have been able to incorporate the technological advances into their production processes, reducing costs and time through the thereof. Increasing number of shoe companies are making use of the 3D printing, in which their designs are made more efficiently and effective.
The strategy of Robeco Consumer Trends is in line with these companies who are committed to continuous innovations, able to anticipate the needs of the consumers, even create them, obtaining further outperformance.
Through 3D printing, shoe manufacturers take advantage of advances driven technology heavy industries such as aerospace. This type of printing is partially extended in the area of personalized medicine as may be the case of hip prostheses. 3D printer’s particles have plastic, metal or even wood into thin layers that are used to construct objects solids.
Before the arrival of this new way of designing the new shoes, the prototypes of the German Adidas, teams were made up of twelve technicians working by hand. The new technology does not need more than two people. With the use of this technique, Adidas managed to reduce the time needed to evaluate new prototype from four to six weeks to just a day or two.
Shane Kohatsu, innovation director of Nike headquarters in Oregon, said to the Financial Times that for him the most striking of 3D printing is not the volume that you get to develop, but the speed with which you can make changes to prototypes.
The strategy of Robeco Consumer Trends has invested about 15% of its total portfolio in the garment industry and luxury goods. Along with Nike and Adidas helping to excel Robeco consumption strategy there is also Lululemon Athletica, other names or Michael Kors, among others. These big brands are a part, along with many others, one of the betting strategy of Robeco Consumer Trends, the big brands. A through them is to not only take advantage of the returns generated by these firms consolidated but also provide a defensive to the portfolio.
Wikimedia CommonsFoto: JoeJohnson2 . La longevidad y publicidad, los grandes aliados de la riqueza de los jugadores de la NBA
Three-quarters of the top 10 ultra wealthy National Basketball Association (NBA) players were drafted in the mid-1990s, suggesting longevity in the sport and corporate endorsements are key to wealth for today’s athletes.
These are the findings by Wealth-X, the ultra high net worth (UHNW) business development solution for private banks, luxury brands, educational institutions and non-profits, which released its ranking of ultra wealthy players following this year’s NBA Draft.
The NBA’s wealthiest have been playing for an average of 15 years, or since 1998, which is considered a long career by athlete standards.
Leading the pack is Kobe Bryant, LA Lakers shooting guard, with a total net worth of US$220 million. Drafted in 1996, Bryant, who will earn US$27.85 million in the 2012-2013 season, continues to draw the highest salary in NBA. This is supplemented by multi-million dollar endorsements with Nike, Coca Cola, Turkish Airlines, Mercedes-Benz, Lenovo, Panini and Hublot.
Boston Celtics forward Kevin Garnet ranks at number 2 with a net worth of US$190 million. The veteran player with a 17-year NBA career has endorsements with Anta, a Chinese sportswear company, and coconut water brand Zinco, worth US$4 million.
Below is the top 10 wealthiest NBA players by net worth:
“Against the backdrop of the NBA Draft last week, it is interesting to explore the correlation between talent, performance and net worth that is revealed in this ranking. It provides a window into the value that society implicitly places on the skills of these professional athletes and the role of entertainment within our culture,” said Wealth-X President David Friedman.
Foto cedida. Some Conclusions After the Correction in the High-Yield Market
The month of June closed with the same negative trends as last month, the sell-off continues without discriminating the fundamental values of the various risk assets, unlike the great falls of recent times (2008 and August 2011). If we focus on the high yield market, we notice a high correlation between the different ratings regardless of credit rating, which indicates that this is not a fall based on credit fears (systemic and increased default), as it was in the above dates.
If we look at the performance of different debt assets from May 9th to June 24th of this year, we can draw the following conclusions:
1. High yield fell lessthan U.S. Treasury bonds and than “investment grade” bonds, which highlights the importance of the spread and the coupon in negative periods.
2. Bonds with a BB, B and CCC rating fell almost the same. This confirms that the sell-off is not due to credit concerns. The credit fundamentals in the high yield market are still very solid. The vast majority of companies already refinanced their debt at long maturities, are at record cash-flow highs and default probability is low (according to JP Morgan about 2%). So the correction is purely technical and not fundamental.
3. The high yield ETF has fallen much more than the high-yield market, nearly 2% of “underperformance” for its trading at premium / discount to NAV and for its tendency to replicate very liquid bond indices.
4. As was to be expected in this correction, those which have performed better are the loans and the short-term bonds. In June, the Muzinich Short Duration Fund fell -1.33%, while that of loans only fell -0.38, versus the high-yield market which in the same period fell -3.6%. The Muzinich America Yield improved its benchmark result with -3.4% during the same period, as is usual in periods of correction due to Muzinich’s management type (without derivatives, without finance and BB and B only).
Having said that, we can see good BB and B bonds in today’s market paying 6 to 7%; levels which are equivalent to those of the summer of 2012 (Northern Hemisphere). So the spreads are already at their 450-550 historical average, but with the difference that the expected default is now much lower than the historical (2% versus the historic 4.5%).
At Capital Strategies Partners, we believe that periods of “non-core” off-risk behavior, as we are seeing right now, represent good opportunities to acquire interesting carry assets. Of course, always under the guidance of a conservative manager who knows how to manage the portfolio’s default efficiently. It’s worth remembering that Muzinich has an impressive track record of default, with only 0.20% of default in more than 10 years, well below the industry’s average rate of 4.3%.
We specifically believe that, currently, the best way to have exposure to high yield is through short-term funds or floating rate funds.
Opinion column by Armando Vidal, CFA, Associate at Capital Strategies.
Foto cedidaPlataforma Lun-A (Lunskoye-A), a 15 km de la costa este de Sakhalin Island. Riesgo soberano, QE y tensiones geopolíticas, las claves del mercado de commodities
Back in 2007 and 2008, correlation between individual commodities had reached very high levels. Of late, however, we have seen significant de-correlation between individual commodities, leading to polarised returns. For example, in the year to 31 May 2013, the DJUBS Commodity index returns for corn exceeded 33% while natural gas rose by over 20%. At the same time, wheat increased by just over 1%, aluminium fell by more than 10% and silver declined by more than 20%.
Commodity decoupling has created opportunities for relative value trades within the portfolio and we have been able to successfully exploit this strategy in metals, energy and grains. This was particularly the case in grains with positions between corn and wheat, and in energy between Brent and WTI Crude Oil or US Gasoline and US Natural Gas.
A US economic recovery is something of a two-edged sword for commodities, as it has two opposing effects
So what has been driving this decoupling? We believe investors initially bought into the commodity supercycle theory, both as a way of tapping into the China story and as a hedge against inflation. The supercycle theory was based on the premise that the industrialization of China would result in a prolonged period of sustained economic growth and increased demand for commodities, thus driving up prices for all commodities.
However, in recent months a growing consensus has developed that China’s growth is likely to decelerate and undergo a shift in emphasis from investment in fixed assets and infrastructure towards domestic consumption. This is likely to have a significant impact, particularly on metals and bulk commodities. As a result, some investors have declared the supercycle dead and are focusing instead on specific factors within each commodity class, such as different supply and demand dynamics within individual markets.
A further significant issue has been the extent to which the macroeconomic environment in the US is improving. A US economic recovery is something of a two-edged sword for commodities, as it has two opposing effects. On the one hand, a stronger US economy should lead to increased demand for commodities. However, it also tends to result in a strengthening dollar and, over time, there is quite a high correlation between dollar strength and commodity price weakness, since commodities are priced in dollars.
Our positioning
We are positive on the energy sector in general, and oil-based energy in particular, as structural demand continues to grow, particularly from emerging markets. Moreover, oil markets are less affected by a deceleration in Chinese growth or a change in the country’s growth strategy. We also believe the impact of an improving US economic environment is positive for oil markets, as the US remains the largest consumer in the world and higher employment should have a positive impact on demand for oil and gasoline. A strengthening US dollar is of less relevance in this sector, as energy tends to be less correlated to the dollar than is the case with metals.
We have been underweight base metals for some time. The shift away from fixed-asset investment to consumer-led growth in China is bound to have an impact on those metals, such as copper, where China has been biggest source of demand over the past few years. The potential strength in the dollar is also likely to be negative for metals due to their strong correlation to the greenback. In addition, the investment we have seen from hedge funds has been driven by a bearish view on the dollar and, as the dollar has strengthened, we should see some liquidation of these trades.
Some investors have declared the supercycle dead and are focusing instead on specific factors within each commodity class
Outlook
We believe recent volatility in the commodities sector creates exciting opportunities to position our commodity portfolios advantageously in the second half of 2013. We remain bullish on the oil sector, especially oil products. Geopolitical risk in Syria and the Middle East in general is clearly a key issue. This risk has been underplayed lately because investors are paying more attention to China and the US −as we progress through the year, the market may be jolted by bad news. In the metals sector, we remain slightly bearish, as the outlook hinges on the changing nature of Chinese growth.
We remain firm believers in the benefits of active versus passive investment when accessing opportunities across commodity markets. We combine not only the use of curve strategies, which is a very popular way of investing in the commodities market, but also the above-mentioned relative value trades, enabling us to raise and lower risk, as appropriate. As intra-asset correlation comes down, our relative value strategies should continue to provide good opportunities.
Opinion column by Nicolas Robin, Co-Manager of the Threadneedle (Lux) Enhanced Commodities Fund.
