After a long day of hunter gathering, it was unlikely that I would have led discussion groups about current investment opportunities while sitting in a cave.
There is a good chance that I would have thought about trading some of my hunted-and-gathered assets for something I needed.
I may have thought about trading furs for timber and coal, or maybe even the shiny gold-coloured stuff dug out from the rock. Welcome to the first commodities exchange.
Midas touch: Commodities have a broad reach from ‘hard’ assets such as gold and iron ore, through to ‘soft’ ones including orange juice and wheat
What are commodities?
Commodities have a broad reach from ‘hard’ assets such as gold and iron ore, through to ‘soft’ ones including orange juice and wheat.
These assets are generally consumable in that they can be used to make other things, or eaten as food.
They are an attractive asset as there is often going to be a demand for them. This can often be followed in the news as they are affected weather-wise or by political issues.
What should we do?
The picture conjured up of commodity investing is often that of men in striped jackets shouting at one another, as perfectly illustrated in the 1983 Dan Aykroyd-Eddie Murphy film, Trading Places. It doesn’t have to be that way! I will be focusing on the hard’ commodities at the moment and will move on to gold and other commodities later.
A commodity fund will give you exposure and allow you to invest in many different stocks. This is a highly developed market so you have many options.
If you have a clear view of a particular asset such as oil or gas, you can invest directly in a single commodity such as copper or iron ore. However, you will have less diversity.
There are many managed funds. However, you should carefully examine what they are investing in. It is not just the commodity price that will impact your investment but any political issues such as Russia’s behavior regarding its Nord Stream gas pipe.
Because these assets are often priced using US dollars, any currency movement will have an impact.
The JPM Natural Resources Fund covers investments in natural resources, including oil and gas. It costs 1.2 percent per annum.
Passive ETF markets can be a great alternative, but it is not an index tracker.
The Invesco Bloomberg Commodity ETF UCITS ETF fits this bill with a management fee of 0.19 percent.
Put on your tin hats.
Justin Urquhart Stewart is the co-founder of fund manager 7IM, and is also the chairman of Regionally.