Since ancient times, raw materials such as cotton, sugar, wood, maize, crude oil, coffee, or gold, along with their inherent scarcity, have exerted a decisive influence on the trajectory of global business. These foundational materials hold considerable value in aspects such as nutrition, transportation, heating, and more, playing a crucial role in global trade. Among others, commodities are considered today as an investment instrument.

Investors typically believe that commodity investments exhibit a low correlation with traditional securities investments regarding price development. This helps stabilize portfolio returns over the long term and subsequently reduces portfolio risk. While commodities indeed offer significant potential in the longer term, there is still much to learn about how to effectively manage them within the realm of asset management, especially given the current stock market situation.

The optimization and diversification of a portfolio with commodities has always been based on the active investment principles of the Commodity Trading Advisors (CTA), which demonstrated impressive results over the last 50 years. However, passive strategies such as “buy and hold” have not been successful in the past. For asset managers it is more important than ever to use transparent products to eliminate counterpart risk. In the future, a diversified portfolio will consist of approximately 10% of assets invested in actively traded commodity products.

Commodities will play an increasingly important role in portfolio hedging and optimization, as they are backed by a real value. However, investors who cover the “commodities” sector via equities are actually trading industrial companies. The disadvantage of this is that if, for example, a mining company cannot mine platinum because of power supply issues, the share price will fall and simultaneously the price of platinum rise, thanks to the remaining demand. Therefore, it is advantageous to trade the basis, i.e. the real value behind it. On the other side, commercial market participants have a pressing need to hedge price risks. This is particularly crucial as an effective hedge can mitigate both production and processing risks.