FTSE 100 tracker funds are overexposed to fluctuations in commodity prices, hampering investors' diversification, according to DigitalLook.com.
Recent changes in the index of the UK’s 100 leading firms have given the index a 36% exposure to commodity related companies, which DigitalLook.com says could have major implications for investors in tracker funds.
Andy Yates, director of DigitalLook.com, explains: “Tracker funds are perceived to be lower risk investments as they offer instant diversification across industry sectors.”
“Private investors need to examine just how comfortable they are with tying the fortunes of their portfolio to the movement in commodity prices.”
A year ago, approximately 26% of the FTSE 100 was made up of firms exposed to commodity prices, but the recent inclusion of firms such as Ferrexpo, a Ukranian iron ore firm, and Petrofac, an oil services company, has pushed this up to 36%.
Yates says this is positive for the FTSE 100 as it means it is less reflective of the UK and G8 countries’ economies and will give further commodities exposure to investors that want it.
However, he claims passive investors may not realise how much money they have riding on the commodity market, and the extent to which their investments are tied to oil demand in China and raw material speculation.
Figures from DigitalLook.com suggest a market capitalisation of £525bn in companies that are directly tied to commodity markets, compared to a total capitalisation of £1,674bn.
The warning comes as Credit Suisse's retail head of equities Graham Ashby also told advisers to beware tracker funds, saying they were too exposed to the oil and mining sectors.
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