Commodities

updated: January 21, 2010

Traditional asset allocation models for investors have a balance of equities (ie stocks and shares), bonds (ie fixed interest investments) and cash, depending on the risk profile of the investor. 

In recent years private investors have been able to follow what institutional investors have been doing for many years, and that is to also include an element of commercial property in their portfolios.

In order to reduce risk in their investment portfolios investors are increasingly looking for other asset classes to provide greater diversification.  We are dealing here with one of these additional asset classes that is now available to private investors, that of natural resources, usually referred to as commodities.  Commodities are real assets, and have little correlation with bond and equity indices, which makes them an attractive asset class in a portfolio.

Commodities are bulk products, such as Coffee, Beef, Gold, Oil, Copper and Wheat, to mention just a few.  These are the raw materials that are economically profitable enough to be traded on special commodity markets.  They are split into ‘hard’ commodities such as Gold, Copper, Zinc etc, and ‘soft’ commodities such as Cocoa, Coffee, Sugar etc.

Commodities form the first raw inputs into the business production process.  Their prices have a major influence on inflation in the economy and thereby Government policy. 

There is strong demand for commodities from the emerging economies, particularly those referred to as the BRIC countries, that is, Brazil, Russia, India and China. 

To obtain further information please click here for our pdf Guide to Commodities.