Reuters – Investors in commodities should look to actively managed hedge funds rather than passive indexes to get exposure to the asset class, UBS Wealth Management said on Wednesday.
Actively managed funds can time buying and selling of securities to take advantage of market opportunities, rather than sit on long positions of various commodities, as the indexes do.
Active funds can so avoid value-destroying market movements such as negative roll yield — the cost of holding onto a security whose long-dated future price is higher than its current price.
“Given the high cyclicality and the expected changes in commodity markets in the future, investors may want to engage in a more active selection of commodities and not invest passively,” UBS said in a report.
The vast majority of investment in commodities, which bankers reckon might be as much as $200 billion (106 billion pounds), is through passive indexes like the Goldman Sachs Commodities Index, but UBS said hedge funds might be a better bet.
“Investors may want to engage in more active investment strategies in this asset class. In this case, commodity hedge funds many provide a valuable alternative to a passive index-oriented investment in commodities,” the Swiss bank said.
