Castlestone Management has worked with Dublin's regulators to create a Ucits commodity fund with truly active management
For investors looking to diversify their portfolio away from conventional bond and stock funds, commodities provide an attractive alternative. Demand is certainly strong, as almost every newspaper and magazine has highlighted in recent weeks.
A growing world population, coupled with rising wealth levels in nations such as China, means raw materials and energy are needed in increasing quantities. That's why we are launching the Aliquot Active Commodity Index (UCITS) Fund.
These markets can be volatile, however, especially when speculative investors see a rally they would like to hitch a ride on. That's why active management is important in reaping the best returns from an investment in this asset class.
When Castlestone Management decided to launch a Ucits-compliant version of its successful offshore Aliquot Commodity Fund, it was very challenging to come up with a product that mirrored our actively traded, actively managed template. The offshore Aliquot Commodity Fund invests directly in commodity futures, for example, which are not eligible for inclusion in a Ucits fund.
Just investing in commodity indices, though, wouldn't have allowed us to steer clear of overpriced assets, or enabled us to increase allocation to those areas with potential to rally. That management flexibility is hugely important - it has allowed our Aliquot Commodity Fund to outperform indices such as the AIG Commodity Index, while reducing overall volatility.
That's why we worked carefully with the Irish Regulator to discover which Ucits-eligible instruments we could buy to create a fund that gives our investors direct, actively managed exposure to the commodity universe and all its potential.
Experienced management is also key to giving investors confidence in a fund. At Castlestone Management, we have been managing clients' money for more than a decade, and allocating to commodities since March 2002.
Our fund management team has notched up more than a century's collective experience, helping them to make the best investment decisions for the fund. Thanks to their expertise, the offshore Aliquot Commodity Fund has returned an annual average of 18.96% since inception.*
Why invest in commodities?
- While historically commodity futures and equities have similar returns and volatility, commodity futures are negatively correlated with equities.
- Over the long term, commodities have maintained their value in terms of rate of exchange for other goods and services.
- Commodity futures have historically proven to be correlated with expected and unanticipated inflation.
- Commodities have proven to act as an insurance policy during times of political or economic uncertainty and the resulting instability in financial markets.
There are compelling, fundamental reasons for commodities to perform well in the coming months and years. Energy - primarily crude oil, gas and heating oil - has already seen splendid price gains in recent years. Five years ago, most analysts would have been mocked if they had forecast oil could hold its ground at above $100 a barrel.
But while these prices may seem high, on an inflation-adjusted basis, oil is not actually very expensive. And as nations such as China look to add a family car to the list of must-have household items, the demand for oil is likely to continue to rise. Indeed, OPEC itself has forecast a rise in prices to $200 a barrel, making today's price tag of $120 or so look like a bargain.
Many agricultural assets also look set to trade on an upward trend, especially grains. Population growth and a switch to higher-calorie diets are driving up consumption. And while farmers can switch between production to make up shortfalls in individual crops, overall demand is rising faster than viable arable land can be increased, and hence demand growth is likely to outstrip that of supply for at least the next five to 10 years.
Another investment opportunity can be found in the precious metals arena, particularly gold. Platinum may have peaked for now, but gold prices are still very cheap on an inflation-adjusted basis, and would have to double before they were near their highs of the 1970s.
Commodities are not just an alternative to stocks and bonds. These assets offer a genuine investment opportunity, not just over the coming months, but in the years ahead.
Investors looking for diversification within their portfolios should take a look at real assets. They are a real investment.
*Refers to class I shares.
Note: The information contained in this page is for professional financial advisers only. Past performance cannot be relied upon as a guide to future performance. The price of shares and the income derived from them can go down as well as up, and investors may not recoup the amount originally invested. Please refer to the relevant fund documentation for detailed information.
About Castlestone management
- An independent fund manager, specialising in alternative assets.
- Started as a family office in 1996.
- Now operates in five continents and manages about $1bn of assets.
- Unique experience in structuring investment products.
- Tailored products for financial intermediaries.
- More than 20 funds under management.
- Disciplined, structured investment approach.
- Full integration of investment management and client support.
- Attractive fee structures designed to maximise investor return.
- Contact information
Tel: + 44 (0)20 7824 9980
Fax: +44 (0)20 7824 9999
Email: [email protected]
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