Alternative investing: Beware the economic ‘super-cycle’ in commodities

Alternative investing: Beware the economic ‘super-cycle’ in commodities

30-06-2015 | インサイト

A market strategist once said that “if you buy commodities, you are betting against the ingenuity of people”. When natural resources become too expensive, human resources step in to find alternatives, says multi-asset investment head Lukas Daalder.

  • Lukas Daalder
    Lukas
    Daalder
    Chief Investment Officer

Speed read

  • Commodities operate in an economic ‘super-cycle’ 
  • Human cleverness means values are always capped 
  • Risks in investment are not always matched by returns

Investors focus on the main asset classes of equities and fixed income, but what about the prospects of alternative forms of investment? In this new series we focus on six segments that may be worth considering: commodities, infrastructure, real estate, hedge funds, absolute return funds and private equity.

“Most asset classes have a cycle: equities go up in times when the economy is booming and down in a recession, and so on,” says Daalder. “Commodities have a super-cycle. They start off with a normal cycle, where commodities do well in the early stages of a recovery as people start to build things again, and then go down when the cycle ends. The super-cycle is a much wider, bigger and longer phenomenon which is driven by scarcity and investments.” 

“The oil price, for example, goes up in the recovery cycle but at some point will become so expensive that it triggers the use of alternatives such as solar energy, which then become economically viable to tap into. And this takes time: you need to invest in new projects, and conduct R&D, etc. So it creates a super-cycle where if oil gets too expensive, people will look for cheaper alternatives.” 

“It means that you are betting against the ingenuity of people. Basically, if you think that people are smart and will solve everything in the end, they will always find a replacement for commodities. Therefore, they will always ultimately decline in price. If you take a basket of 10 commodities, in 10 years from now, the value of it will probably be lower. Ingenuity means people get smarter and find alternatives in the super-cycle outside the normal economic cycle.”

最新の「インサイト」を読む
最新の「インサイト」を読む
配信登録

Commodity price growth may be peaking.
Source: Business Insider.

Oil remains the kingpin

A major issue with commodities is that there are so many different types with different characteristics, from ‘hard’ materials such as metals and ‘soft’ agricultural products – though there is one elephant in the room. Oil. 

“Commodity prices are dominated by the sheer size of the oil market, so people will normally just ask where we are in the stage of the oil super-cycle,” says Daalder. “Since 2014, there has of course been a dramatic decline in the oil price, which is related to the rise of US shale oil. And it doesn’t feel like we’ve hit the bottom yet, even though oil prices have recovered somewhat, because fracking is still in development and has not yet peaked.” 

“Added to shale, it is clear that solar energy is becoming more competitive as the costs have been driven down immensely. Solar is set to become a serious competitor for oil, so we’re not yet at the bottom of the super-cycle for oil.”

‘Solar is set to become a serious competitor for oil’

How solar power prices have fallen.
Source: The Economist via Bloomberg

Risk not always matched by return

Buying into commodities can therefore be a riskier investment than other asset classes, but without necessarily getting the returns needed to justify the extra risk, says Daalder. “The risk profile of commodities is a bit like equities, but the volatility is higher, while the return profile is lower. Over the past 25 years, depending on which index you look at, commodities have yielded returns somewhat in excess of (risk-free) US Treasury bills, but at much higher volatility. Equities on the other hand have offered superior results over time. Part of this weak return is linked to the fact that you continuously need to roll over future contracts when investing in commodities, which is a costly exercise.”

“You may wonder why you want to invest in commodities, in that case. Traditionally, there are two arguments: diversification and timing. The diversification argument used to be that commodities added returns at times that equities didn’t. However, this argument has lost a lot of its shine over the past couple of years, as stocks and commodities became much more correlated during the 2009 crisis. The other argument is timing: as long as you are able to make a correct call on the super cycle, you can beat equities. But you need to have the knack of spotting the start of this cycle.”

The market can also suffer from liquidity problems, where it may be difficult for an investor to exit if things turn sour. “Liquidity depends on each commodity. The oil market is very liquid, and it’s easy to get in and out. However, if you move into natural gas, you can see some strange price moves at times, which is partly a result of liquidity problems, as well as transport and storage costs” says Daalder.

‘If you can make a correct call on the super cycle, you can beat equities’

At the mercy of the weather

This lack of liquidity in some areas can also translate into lower transparency, he says. “Given the illiquid nature of some commodities and the fact that many are linked to the weather, where one bad summer can badly affect production and prices, returns are unpredictable. So it may be a transparent market on the whole, but some of these commodities are pretty erratic, and go up and down quite heavily according to certain events,” he says. 

“Commodities do tend to be a good inflation hedge, but there is a question here of causation and correlation. The two major inflation shocks that we have had over the past 60 years have been due to oil prices, and was therefore the cause of the inflation. It became a hedge against the inflation that it had created.” 

Subsequently, commodity investing has fallen off the radar, and is no longer offered by Robeco. “The trend overall in the last five years has been that people have been less inclined to be invested in commodities. Added to that is the fact that the longer-term returns are not that interesting,” says Daalder.

重要事項

当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。

ご契約に際しては、必要に応じ専門家にご相談の上、最終的なご判断はお客様ご自身でなさるようお願い致します。

運用を行う資産の評価額は、組入有価証券等の価格、金融市場の相場や金利等の変動、及び組入有価証券の発行体の財務状況による信用力等の影響を受けて変動します。また、外貨建資産に投資する場合は為替変動の影響も受けます。運用によって生じた損益は、全て投資家の皆様に帰属します。したがって投資元本や一定の運用成果が保証されているものではなく、投資元本を上回る損失を被ることがあります。弊社が行う金融商品取引業に係る手数料または報酬は、締結される契約の種類や契約資産額により異なるため、当資料において記載せず別途ご提示させて頂く場合があります。具体的な手数料または報酬の金額・計算方法につきましては弊社担当者へお問合せください。

当資料及び記載されている情報、商品に関する権利は弊社に帰属します。したがって、弊社の書面による同意なくしてその全部もしくは一部を複製またはその他の方法で配布することはご遠慮ください。

商号等: ロベコ・ジャパン株式会社  金融商品取引業者 関東財務局長(金商)第2780号

加入協会: 一般社団法人 日本投資顧問業協会