Intelligent Commodity Indexing: A Practical Guide to Investing in Commodities - Hardcover

GREER

Hardcover

ISBN 10: 0071763147 ISBN 13: 9780071763141

Verlag: McGraw Hill, 2012

Inhaltsangabe

THE SECRETS TO CAPITALIZING ON THE COMMODITIES BOOM In the mid-1970s, when Bob Greer scrolled through miles of microfilm in the basement of a public library in order to record commodity prices in his yellow legal pad, the idea of commodities being an investable asset class was way outside the mainstream. Now, it's a multibilliondollar vehicle for achieving portfolio diversification and inflation hedging--and he and his colleagues have written the book on earning better returns than the indexes themselves! In Intelligent Commodity Indexing, Bob joins his fellow leaders of PIMCO's Commodity Practice, Nic Johnson and Mihir Worah, in opening up commodity indexes. Never before has there been a more thorough explanation of how a commodity index works coupled with a powerful set of strategies for making it work for you. Inside, you'll find the most up-to-date tools and time-proven best practices for earning "structural alpha" by capitalizing on recurring risk and liquidity premiums in the commodities markets. It offers the right amount of history and theory to reinforce cuttingedge techniques for: Interpreting how seasonal effects change risk premia Choosing the most profitable market for specific commodity exposure Using intelligent commodity indexing to collect risk premiums in the options market Maximizing roll yield in order to increase long-term returns Managing risk, including specific frameworks and systems Investors gain a superior advantage with this book's coverage of the nuts-and-bolts workings of various markets. Praise for Intelligent Commodity Indexing "A seminal work on an asset class that has grown in importance within institutional portfolios. The authors offer considerable insight to this complex asset class and provide investors with a thorough examination of the drivers of risk and return." -- Julia K. Bonafede, CFA, President of Wilshire Consulting "This is an excellent guide for professional investors to successful investing in commodity indexes." -- Blythe Masters, Head of Global Commodities, JP Morgan "A manual written by successful practitioners for intelligent commodity investors. An excellent guide which explains how this asset class complements and interacts with other investments." -- Alan H. Van Noord, CFA, Chief Investment Officer, Pennsylvania Public School Employees' Retirement System "Commodities are invaluable tools for investors wishing to benefit from diversification and inflation hedging. For such an investor, this is the authoritative source to all you need to know about commodity indexing." -- Mark Makepeace, Chief Executive, FTSE Group "Greer, Johnson, and Worah simply explain the critical drivers to commodity index returns that have provided the main historical benefits of diversification and inflation protection. Every commodity index investor, or hopeful investor, should read this book and use it as a guide for evaluating the relevant index characteristics for benchmarking and investing, especially given recent industry innovations." -- Jodie Gunzberg, CFA, Director-Commodities, S&P Indexes

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In the mid-1970s, when Bob Greer scrolled through miles of microfilm in the basement of a public library in order to record commodity prices in his yellow legal pad, the idea of commodities being an investable asset class was way outside the mainstream. Now, it's a multibilliondollar vehicle for achieving portfolio diversification and inflation hedging--and he and his colleagues have written the book on earning better returns than the indexes themselves!

In "Intelligent Commodity Indexing," Bob joins his fellow leaders of PIMCO's Commodity Practice, Nic Johnson and Mihir Worah, in opening up commodity indexes. Never before has there been a more thorough explanation of how a commodity index works coupled with a powerful set of strategies for making it work for you. Inside, you'll find the most up-to-date tools and time-proven best practices for earning "structural alpha" by capitalizing on recurring risk and liquidity premiums in the commodities markets. It offers the right amount of history and theory to reinforce cuttingedge techniques for: Interpreting how seasonal effects change risk premia Choosing the most profitable market for specific commodity exposure Using intelligent commodity indexing to collect risk premiums in the options market Maximizing roll yield in order to increase long-term returns Managing risk, including specific frameworks and systems

Investors gain a superior advantage with this book's coverage of the nuts-and-bolts workings of various markets.

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INTELLIGENT COMMODITY INDEXING

A PRACTICAL GUIDE TO INVESTING IN COMMODITIES

By Robert J. Greer, Nic Johnson, Mihir P. Worah

The McGraw-Hill Companies, Inc.

Copyright © 2013 Robert J. Greer, Nic Johnson, and Mihir P. Worah
All rights reserved.

ISBN: 978-0-07-176314-1

Contents

Foreword
Introduction
CHAPTER 1 History of Commodity Indexing
CHAPTER 2 Drivers of Commodity Index Returns
CHAPTER 3 Thinking About Inflation Hedging and Diversification
CHAPTER 4 Intelligent Commodity Indexation Overview
CHAPTER 5 The Drivers of Roll Yield
CHAPTER 6 Maximizing Roll Yield
CHAPTER 7 Calendar Spreads and Seasonal Strategies
CHAPTER 8 Substitution
CHAPTER 9 Volatility
CHAPTER 10 Implementation
CHAPTER 11 Risk Management
CHAPTER 12 Commodity Fundamentals
CHAPTER 13 Index Development—The Next Phase
Conclusion
References
Index

Excerpt

CHAPTER 1

History of Commodity Indexing

There has been an interest in commodity prices, and indexes of those prices, fora very long time. Until the late 1970s, those indexes typically referred toprices of physical commodities. Part of the reason is that the interest incommodity prices stemmed from the impact that commodities had on the overalleconomy, whether in the United States or elsewhere. Commodities were nottypically viewed as an investment vehicle in their own right.

Some of those early indexes were published by Reuters, by the FinancialTimes, by the Economist, and by other data sources. These indexescomprised a broad range of commodities, including commodities for which therewere futures markets as well as commodities that had no futures equivalent.There were, and are, a variety of other indexes of cash commodity prices forspecific industries, including livestock, energy products, and mining products.Both Dow Jones and the Commodity Research Bureau also published indexes thatused the current, or spot, month of commodity futures markets as a surrogate forcash markets, partly because this information was readily available. But likethose other early indexes, these published indexes based on futures prices werenot investable because they could not be replicated by a financial investor.Therefore if investors wanted exposure to commodity prices, they typically wouldpurchase the capital asset that was used to produce thecommodity—farmland, or a metals mine, or an oil and gas partnership, ornatural resources companies. These investments could provide some positiveexposure to commodity prices, but there were drawbacks.

While the most obvious problem was liquidity, an investment in the means ofproducing a commodity also gave exposure to other risks, not all of which wererelated to commodity prices. For instance, the success of a farmland investmentmight depend not just on the price of the food it produced but also on theweather. And the purchase of a natural resources stock exposed the investor tothe financial structure of the company and to the management talent of thecompany. There could also be risks unassociated with the price of the commodity,as investors in BP realized when that company's oil rig exploded in the Gulf ofMexico in 2010. In this case, while oil prices initially spiked higher due tothe loss of production, BP stock actually declined significantly on anticipationof liability and cleanup costs associated with the explosion.

Actually purchasing and storing a commodity in order to benefit from an increasein its price was also typically not practical, with the exception of preciousmetals, for which the storage cost was small relative to the value of theinvestment. Industrial metals might also be purchased and stored for longperiods, but in this case the storage cost was a much higher percentage of theinvestment. Additionally, some agricultural commodities could be purchased andstored for limited periods of time, but that type of investment would sufferfrom spoilage as well as from high costs for storage and insurance. Furthermore,there was not a large incentive to hold commodities in order to benefit fromrising prices, since the prices of many commodities had not even kept up withinflation during the decades following World War II. This was partially theresult of improving technology that enhanced extraction rates for oil and metalsas well as increased yields for grains, resulting in periods when commoditysupply, both actual and potential, was well above demand.

During the inflation and related shortages of several commodities, such asgrains and industrial metals, in the 1970s, however, the interest in commoditiesfor investment began to take root. But still, that interest tended to expressitself in the purchase of the capital assets that actually produced commodities.Although the impact of higher commodity prices on inflation may have been wellunderstood, the possibility of hedging against this via a systematic investmentin a basket of commodity futures was generally not appreciated. Investors weretypically not able to get exposure to anything like a broad-based index ofcommodity prices.

THE FIRST INVESTABLE COMMODITY INDEX

The early 1970s was also a time when investors first saw the idea of aninvestment designed to replicate an index of the stock market. Sure, there hadbeen stock indexes for many, many years, but the first stock index fund was notoffered until the early 1970s. Seeing that commodities were contributing toinflation in the 1970s, and seeing also the appearance of an investable stockindex fund, gave Bob Greer the idea of finding a way for a financial investor togain exposure to commodity prices. At that time, commodities were thought of ashigh-risk investments. But in fact, the price of an individual commodity mayoften be no more volatile than the price of a single stock. The price of wheatwas typically no more volatile than the price of IBM.

There were two reasons why commodities were thought of as being so risky. Thefirst reason was that participants in the commodity futures markets typicallyused a large amount of leverage. This leverage was possible because the marketparticipants did not actually own a physical commodity, which would haverequired borrowed money to finance. Instead, the market participants made acommitment to buy (or sell) a commodity in the future. As long as they closedtheir position before they were contractually obligated to take delivery of (ordeliver) the physical commodity, they only had to deposit sufficient margin toensure that they could perform on that future commitment, adjusting that marginas the price of the future commitment moved for, or against, them. This allowedthe market participants to be exposed to a large notional amount of thecommodity with only a small capital commitment. Hence small adverse movements inthe price of commodities could entirely wipe out the capital of these leveredinvestors, just as small favorable moves might multiply the investors' capitalmanyfold. This margin deposit might be thought of as being similar to theearnest money deposit that is typically made by a buyer of a house when thathouse is put under contract. The full amount of the purchase price is onlyrequired when the sale...

Details zur Ausgabe

• Verlag: McGraw Hill
• Erscheinungsdatum: 2012
• Sprache: Englisch
• ISBN 10: 0071763147
• ISBN 13: 9780071763141
• Einband: Gebundene Ausgabe
• Anzahl der Seiten: 288
• Kontakt zum Hersteller: Nicht verfügbar
• Verantwortliche Person: gpsr@libri.de; gpsr@libri.de; ; Europaallee 1; Bad Hersfeld; 36244; Deutschland