Tuesday, 22 July 2014
Last updated 2 hours ago
May 23 2008 | 2:00am ET
New research from Greenwich Associates reveals that more than a third of investors in commodities have been active in these markets for less than three years, and more than one in 10 say they started investing in over-the-counter commodity derivatives within the past 12 months.
According to the research, the growing ranks of commodity market investors consist of three types of insitutions: pension funds, which use commodities as a portfolio diversification tool; European banks, which use commodity derivatives to structure retail products that they then sell to their retail customers; and hedge funds, which use commodities as a source of alpha.
Overall, about 55% of the investors say they use commodity derivatives for diversification, including almost 85% of pension funds and fund managers, according to Greenwich consultant Frank Feenstra. At the same time, almost 40% of the investors say they use these instruments to generate alpha, including nearly three-quarters of hedge funds.
Nearly 45% of investors say they invest in index swaps and 39% say they use plain vanilla non-index commodity swaps. About a quarter use OTC commodity options and 21% use structured notes with commodities underlying.
“In general, fund managers and pension funds are more likely to invest in index options, while banks are more likely to use single-commodity swaps and structured notes,” noted Greenwich consultant Woody Canaday.
Between 20% and 30% of investors are active in OTC derivatives in oil and natural gas. Fifteen percent to 20% of investors use OTC derivatives in base metals and precious metals, and just under 10% of investors use OTC derivatives in electricity.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…