Commodity strategy

Key messages:

• The rising cost of raw materials has a direct impact on inflation
• Investing in raw materials is a hedge against inflation
• High growth potential of the strategy due to global trend reversal  

Description

Key strategy in the portfolio, allows to benefit from the increasing value of the key inflation component (raw materials).  Over the last 30 years, commodities have declined in value not only in absolute terms but also relative to the value of the equity market (S&P 500). Commodities stopped declining in 2019, confirming a trend reversal later in 2020 and beyond. Over the next 30 years, commodities are only expected to increase in value (Commodity Supercycle), fuelled by current and emerging geopolitical issues, natural disasters and/or epidemics.  

A relative strategy (Commodity/S&P500 Index) earns when the value of the commodity rises, the value of the equity index falls when the commodity rises more than the equity index or falls less than the equity index.

Commodities include all commodity assets, exposure is obtained through the most popular ETFs (DJP, FTGC and others). 

To assess the strategy's potential, historical value movements during the 2008 economic crisis were used. This strategy would have risen by 330%. The data is provided for guidance and to estimate the potential relative to the strategy's current performance.