FUND FOCUS: Commodities / Energy
Best performer YTD: Irish Life Commodities Index + 23.39%
Worst performer YTD: JP Morgan Commodity-IGAR Index Capital Protection +11.72%
THE RISE in commodity prices may be bad news for consumers, but for investors it has given a welcome boost to returns.
Last year was a particularly strong period for commodities. According to data from MoneyMate, Irish gross domestic funds invested in commodities and energy funds delivered average returns of +16.357 per cent in the year to January 10th, 2011. The best performer was Irish Life’s Commodity fund.
The fund tracks two indices – the SP GSCI index, a general benchmark commodity index, and the GSNE index, the Goldmans Sachs non-energy index, maintaining a 50-50 exposure to each.
According to Irish Life Investment Managers, the bounce by commodities in the second half of 2010 and currency exchange rates drove fund performance.
While the fund fell by 11 per cent in the first half of the year in dollar terms, it rose by 32 per cent in the second half. The overall performance of the fund over the 12 month period also benefited from currency trends.
While the fund returned +17.7 per cent on the year in dollar terms, the strengthening dollar pushed the overall return to close to 25 per cent.
The fund also benefited from heavy exposure to agriculture- related commodities. While commodity funds usually put 65 to 70 per cent of their investment into energy stocks, energy accounts for just 33 per cent of Irish Life’s commodity fund.
Moreover, 35 per cent of the fund is invested in agriculture, 16.5 per cent in industrial metals, 7 per cent in precious metals while the fund has an 8.5 per cent exposure to livestock.
Despite the continued sovereign debt worries, Anthony MacGuinness, head of financial engineering with Irish Life, believes that commodities – traditionally a volatile investment option – will continue to be a central part of investors’ strategies this year as people continue to invest in alternatives to equities.
JP Morgan’s Commodity-IGAR Index fund came in at the other end of the scale in terms of returns. However, the fund still posted an impressive +11.72 per cent growth in the year to January 10th.
A representative for the fund pointed out that it was denominated in sterling, which accounted for the performance differential compared to other funds. The fund was also a capital protected fund, she said, which meant investors enjoyed fewer returns as a condition of added protection.
