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After completing a trade certificate in , he travelled to London where he was an accounts clerk at the International Commodities Clearing House. He advised clients on various speculative and hedging strategies that could be employed in the commodity futures and options markets using statistically based models. As trading manager, he was responsible for developing strategies for both hedgers and speculators.
He was responsible for developing investment strategies, software design and compliance. In , Greg established Global Commodities Limited, which is registered with the Australian Securities and Investment Commission and applies an active risk management overlay within a commodity index framework. Global Commodities Singapore Pte Ltd was established in You have long experience of trading commodities. Tell us about your background. Having grown up in an Australian outback mining, sheep and cattle town, I became well aware of the impact of fluctuations in demand and supply for these natural resources and how that impacted the incomes of the community.
Consequently, trading in commodities had my interest at a young age and obviously still has today. In the early s, after working for the International Commodities Clearing House in London, I returned to Australia and commenced work as a commodity broker with a local firm that was bought by Deutsche Bank, advising both hedgers and speculators.
My experience in commodities now stretches over 30 years and I have an audited track record for the Active Global Commodities strategy AGC , since December with many lessons learnt along the way. Although I have been focused on commodities for longer than most managers, I still feel there is much to learn.
These markets are unique, dynamic and constantly shifting as factors such as global politics, economic developments, technology, weather, natural disaster and world population growth are ever shifting variables that impact the demand and supply for commodities.
Commodities are a fascinating asset class and without them we would not have a functioning society. Tell us about your flagship commodities investment strategy. The AGC is a long only, unleveraged, using exchange traded commodity futures strategy that reduces commodity exposure determined on the degree of implied yield and moved into cash.
Our investment approach is to calibrate fundamentals which determine the degree of exposure to commodities and risk metrics to reduce exposure. The AGC is an alternative to a passive long only index. By managing the downside risk associated with commodity indices, we have generated superior risk adjusted returns to these benchmarks.
First, we trade only commodities, whereas most CTAs trade currency, financials and share indices. Secondly, Global Commodities is not leveraged and does not short commodities. Thirdly, Global Commodities charges lower fees than most commodity managers.
Commodities investments are notoriously volatile which is why some investors avoid such exposure in their portfolios. How do you limit the downside risk associated with commodities? Commodities are volatile due to supply variability that can be extreme.
We manage the downside risk effectively with robust non optimised metrics and know how much the market can move against us before we get out. Over time we have outperformed our benchmark by losing less which is the focus of the AGC strategy.
How can investors use commodities as a hedge against unexpected inflation? Historically, any unexpected inflation impacts commodities lifting prices, so if you believe like me that inflation is coming, then you need to be long commodities. In addition to the Active Global Commodities strategy you also have a market neutral and an agricultural only strategy. What is the rationale behind these strategies?
The market neutral Alpha strategy is designed to capture the risk premium associated with markets trading in structural contango, or backwardation. This is unique to commodity markets as the structure of forward commodity prices is impacted by factors such as seasonality, cost of carry, and the capital intensity of the physical market. This is a low volatility offering being unleveraged and applying the same risk management process as the AGC.
It allows investors to better tailor their portfolios based on their risk profiles and has low to negative correlation to both commodity and share indices. Returns are independent of directional moves, as this risk premia can be captured in both rising and falling commodity markets.
The agricultural only strategy is designed for investors wanting exposure to this sector of the commodity spectrum. The same risk management approach as the AGC is applied. You have expanded Global Commodities from Adelaide, Australia to include operations now in Singapore. Tell us about it and the thinking behind the dual office set-up. The rational for Global Commodities establishing an office in Singapore is to be located in a financial hub that services Asia and to replicate the investment process as a backup to the Australian operation.
Singapore is one of the fastest growing financial centres in the world. We believed it was important to be part of that growth. Also we like to visit with our investors in Europe, UK and Asia regularly, being based in Singapore has us closer to them. What do you say to investors that currently are bearish on commodities?
Now is the time to stop being bearish. There are a number of factors developing from continuing unrest in oil producing regions, frequent extreme weather events, to the unprecedented printing of money and some of the factors worth considering, that could trigger higher commodity prices.
Collectively or individually, the development of these scenarios will push commodity prices higher; also, of the 22 markets we trade, eight are currently below their average cost of production with others below the marginal cost of production.
Although it is not unusual to see commodities trade below cost of production, it is rare to see this situation maintained in the long term as operations simply become uneconomical and respond by shutting down. Demand is relatively constant for fuel and food while supply is highly variable.
Over the longer term, it is hard to fathom how commodity prices cannot continue to rise. Global population growth, economic growth and increasing standard of livings particularly in Asia point to demand pressure for energy, food and metals for decades ahead.
Although we are not exhausting commodities any time soon, it is certainly getting more difficult to access metals and energy having to drill and dig deeper in more remote locations. Factors such as weather, reductions in arable land and declining water reserves, there are others as well that are making production more difficult and costly. Also, commodities are a hedge against the cost of living and inflation.
From a timing perspective, the downside risk is low relative to potential returns if any of the above scenarios develop. A commodity driven inflationary spiral is a real possibility and will significantly impact countries like Japan for example that are major importers of food and fuel. Where do you see commodities investments going from here?
However, in more recent years, investors have become somewhat disillusioned by negative returns and volatility specific to their commodity exposure. Passive investors in benchmark indices and some of the enhanced roll indices have suffered the full extent of the market decline since the Lehman crisis.
Ultimately though, it comes back to the nature of these markets. They are dynamic and very different to equity and bond markets. If you are investing in commodities, like you do shares, or bonds, it is a very expensive lesson as they behave differently.
I see the marketplace beginning to recognise this and consequently there is growing interest in commodity managed solutions and a trend developing away from passive and pure algorithmic strategies in non-managed formats.
Asia ex-Japan mandated hedge funds posted the steepest decline among regional mandates Fund One runs a systemati