New York (HedgeCo.net) – A new white paper entitled, “Commodities Outlook: Increased Volatility, Increased Opportunity?” has been released by Credit Suisse’s Asset Management division. The paper examines the recent rise in the volatility of commodity prices within the context of a longer-term, secular trend of increasing volatility and how investors can best position their hedge fund portfolios in this environment going forward.
The paper is written by Credit Suisse hedge fund managers Nelson Louie, Global Head of the Commodities Group within Asset Management, and Christopher Burton, Senior Portfolio Manager, who believe that a sustained level of volatility may actually benefit long-term commodity investors for the following reasons:
- Tightening supply/demand conditions may exacerbate commodity volatility, but may also potentially lead to higher returns over the long term;
- Return drivers for commodities are distinct from those of traditional equity and fixed income markets and relate to their idiosyncratic supply/demand functions; and
- Investors can potentially capitalize on the shape of the futures curve by taking advantage of short-term supply shocks to potentially generate alpha.
In addition, the white paper focuses on the drivers of commodity volatility and makes the case for what may be a prolonged period of supply/demand imbalance. Louie and Burton also address the impact of this imbalance on prices, and how certain events such as extreme weather, economic expansion, labor disputes or geopolitical risk can exacerbate price volatility.
Editing by Alex Akesson