Commodity Trading and Risk Management in a Multi-asset Class Portfolio
After a period that saw commodity prices and volatilities broadly collapse, there is every indication that commodities are once again an attractive asset class. Prices and volatilities have been rising again across almost all commodities, and investors have been returning in droves. This was demonstrated by the S&P GSCI, having reached a low point in 2016, before climbing relatively steadily ever since. Meanwhile, low interest rates, solid economic growth across the globe and rising corporate earnings have hoisted equities to record levels early in 2018, before losing some luster recently. Commodities, the basic building blocks of civilized life, are again in demand – both from consumers as well as investors.
The rise in commodity prices and volatilities impacts everyone as this comes at a time when there is increased regulatory and stakeholder oversight, geopolitical uncertainty, and fundamental shifts in technology and industry structure are taking place. All aspects of risk are important, but operational risks and cross asset risks/opportunities in particular, have increased in importance. Many companies are also seeking to reduce costs and engage in digitalization programs while seeking system consolidation and a reduction in total cost of ownership of solutions.
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