Gold Market Radar (January 1, 2012)

Sunday, January 1st, 2012

Gold Market Radar (January 1, 2012)

For the week, spot gold closed at $1,563.70 down $42.65 per ounce, or 2.7 percent.  Gold stocks, as measured by the NYSE Arca Golds BUGS Index, fell 2.4 percent. The U.S. Trade-Weighted Dollar Index rose 0.4 percent for the week.

Strengths

• With the end of tax loss selling on December 23 for Canadians, the pressure to lock in losses for the year was abated and there were some significant rebounds over the last five trading days of the year.  Gran Colombia Gold surged 16 percent while both Romarco Minerals and San Gold gained 6 percent.
• Although we have been seeing some profit-taking towards year-end, gold has advanced 10 percent, heading for the eleventh straight annual gain. Gold returns are largely uncorrelated with the market and this has boosted its demand as an alternative investment for portfolio diversification amid slumping equities.  Gold’s high for the year was a record $1,923.70, reached on September 6.
• Holdings in exchange-traded products backed by physical bullion are increasing for the first time in three weeks, rising 0.3 percent this week after falling in the previous two weeks 1.5 percent.  Buyers are coming back as the market looks oversold at current levels.

Weaknesses

• The United States Mint reported this week that sales of the U.S. gold and silver bullion coins slowed in the fourth quarter as precious metal prices fell from their highs, signaling that investor interest in physical metal purchases may be waning.
• Generally, news flow in the gold space was negative for the week.  Seasonally slow jewelry demand in India (the world’s largest gold buying nation) and a ban from the People’s Bank of China (PBOC) on all non-official gold trading exchanges in the world’s number two gold consuming company, all contributed to weaker sentiment.  The Bombay Bullion Association said on Tuesday that December’s imports of gold bullion to India will likely stand 50 percent below December 2010 levels.  The PBOC ordered the closure of all gold trading platforms and services outside the Shanghai Gold Exchange and Shanghai Futures Exchange.
• Due to surging gold prices in rupee terms, to lift sales, Indian jewelers have reduced the gold content to make up for the loss.  A steep jump in the price of gold in the first half of the year impacted demand for gold, while the volatility over the remaining months ensured that gold traders and jewelry retailers destocked.  Jewelers in some cases were replacing the weight of gold with diamonds to keep investors’ interest.

Opportunities

• The Head of Research at China’s Central Bank was quoted saying that the country should buy gold as the only safe place for risk-averse investors when other assets are losing value.  Zhang Jianhua, the head of the research department at PBOC, wrote in the Financial News that, “the Chinese government needs to further optimize China’s foreign exchange asset portfolio and to seek relatively low entry points to buy gold assets.”
• We would expect there to be renewed interest in picking up many of the beaten down gold stocks with the start of the New Year as the sell off was exacerbated by tax loss selling in both the U.S. and Canada in the fourth quarter.  Seasonally, the January Effect is in play and gold prices typically see seasonal strength up until the April/May window.
• Securities and Exchange Commission data shows John Paulson, Paul Touradji and Eric Mindich, all hedge fund managers, sold bullion this year.  While there have been reports of high profile investors cutting their gold exposure it cannot be conceded that this conclusively ends the run in gold bullion.  Certainly some of the bullion selling reflected investor redemption requests, and fund manager preference to sell bullion instead of stocks, which on a relative basis have underperformed.  Turmoil in Europe has also been a factor in pushing the euro lower to the benefit of the dollar and detriment of gold.  Keep the economic fundamentals in mind as the debt and unemployment problems are far from being solved and the politicians will be more likely to stimulate growth and print money to extinguish debt as they seek to get reelected in 2012.

Threats

• Zimbabwe announced that it is considering setting up a ban on raw platinum exports, in an effort to force miners to set up refineries in the country.  Zimbabwe has the second-largest known platinum reserves in the world.
• Peru’s government may declare a state of emergency in the northern Andes should protests resume against Newmont’s Minas Conga gold project valued at $4.8billion.  It has been speculated that those protesting against the project have planned a march in the highland region for January 2-3.  The government has said it will take legal action against the protest leader, Gregorio Santos, for barring all industrial activity in the area around Newmont’s project.
• Beginning January 20, 2012, workers of Freeport McMoRan’s Grasberg mine, who have been on strike since September 15, will gradually return to work.  More than 8,000 workers went on strike demanding higher wages, and the union has agreed to a 37 percent pay rise over the next two years. Copper prices may see some slackness in the near term.

Tags: Alternative Investment, Bank Of China, Days Of The Year, Dollar Index, Gold And Silver, Gold Bullion, Gold Market, gold stocks, Gran Colombia, Investor Interest, Market Radar, Nyse Arca, Pboc, Portfolio Diversification, Precious Metal Prices, Romarco Minerals, Silver Bullion Coins, Spot Gold, U S Gold, United States Mint
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Diversification’s Dirty Secret

Tuesday, October 18th, 2011

This Week: iShares CDN S&P/TSX Cap REIT ( Ticker: XRE )

One of the pillars supporting modern portfolio management is diversification. However, with markets around the world suffering equally, you could be forgiven for thinking that the pillar has crumbled and brought your portfolio down with it.

But let’s not jump to such a hasty conclusion. It could be that what looked like diversification in good times turned into concentration in bad.

On the surface, many portfolios look diversified. Obeying the dictum, “Don’t put all your eggs in one basket”, many investors hold a good mix of Canadian, U.S. and international stocks. That helps improve returns in good times.

But global equity markets have a bad habit of moving in step with each other just when you would rather they marched to different beats. In the language of Bay Street, correlations increase in bear markets. This tendency undermines diversification’s protective role.

The last six months are proof. The S&P 500 is down 15%, the S&P TSX 60 is down 20%, the MSCI EAFE, which includes developed markets outside the United States, is down 23% and the MSCI Emerging Markets is down 30%.

It is clear that simply investing in broad market indices across many countries does little to protect against bad times. As all markets become more globalized and interconnected, as corporations become more multinational, this tendency will strengthen.

Then where does that leave diversification and more importantly, the future of your portfolio?

Ironically, it turns out that diversification may come from within. Rather than diversify across countries, it may be more effective to diversify across sectors, be they domestic or international. In fact, sectors within a market often have much lower correlation to each other than the broad market index does to its global counterparts.

The S&P TSX 60 has a correlation of +0.84 to the S&P 500, +0.80 to the MSCI EAFE and +0.85 to the MSCI Emerging, with perfect correlation being equal to +1.00.

However, its correlation to its parts is lower, excepting energy and financials – no surprise given their dominance of the TSX.  The Canadian Energy sector has a +0.90 correlation to the S&P TSX 60, Financials are +0.75, Materials are +0.68, REITs are +0.66, Utilities are +0.50 and Telecoms are +0.45.

Returns across sectors are just as varied. Over the last six months, Energy is down 25%, Banks down 15%, Materials down 17%, REITs down 1%, Utilities and Telecoms both up about 3%.

REITs, utilities and telecoms are also less volatile and pay higher dividends than sectors like energy, materials and financials. That makes them good candidates for troubled times.

Last December, we began reducing the riskiness or “beta” of our portfolios. We reduced our allocation to the iShares S&P TSX 60 ETF (XIU-TO) and cut the iShares S&P TSX Materials (XMA-TO).

We added the iShares S&P TSX REITs ETF (XRE-TO) and the Claymore S&P TSX Canadian Preferred Shares ETF (CPD-TO) for their lower volatility and high dividends. Since then, both XRE and CPD both have helped improve the total portfolio’s returns.

The current dividend yield on XRE is about 5.25% and about 4.90% on CPD and their total year-to-date return is 8.76% and 1.92%.We expect that with interest rates low and with little chance of an increase by the Bank of Canada in the near future, both ETFs will continue to perform well.

The other sector to consider is utilities. iShares recently added a S&P TSX Utilities ETF (XUT-TO). It has returned about 3% in gains and dividends since its launch in April. It may be another candidate for calming a portfolio, though its size is small at only $8 million in assets and it is concentrated with only 11 firms in total and 65% of the allocation in the top four companies.

Allocating by sector is not as simple as allocating by country. Nor are there as many good choices available in Canada, though the selection is better in the United States.

But as globalization causes equity markets to move more and more in tandem, the sector allocation decision will become more important. And the dictum may change to “Don’t put all eggs in your basket, add bread and potatoes too.”

Disclaimer: We may hold positions in any and all securities mentioned in this report.

The archerETF Global Tactical Portfolio

archerETF offers Global Tactical Portfolio Management.

Our outlook is Global: we invest across countries, sectors, commodities and other asset classes to improve returns. Our management is Tactical: we strive to select the right opportunities at the right times in response to changing market conditions to manage and minimize portfolio risk.

Please call us at TF 1-866-469-7990 for more information.

Tags: Bad Habit, Bear Markets, Broad Market, Canadian, Canadian Market, Cap Reit, Commodities, Correlations, Dictum, Dirty Secret, Eggs In One Basket, Global Equity Markets, Hasty Conclusion, International Stocks, Market Index, Market Indices, Modern Portfolio, Msci Eafe, Msci Emerging Markets, Outlook, Portfolio Diversification, Portfolio Management, Tsx, TSX 60
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Gold Market Cheat Sheet (August 22, 2011)

Sunday, August 21st, 2011

Gold Market Cheat Sheet (August 22, 2011)

For the week, spot gold closed at $1,852.10, up $105.20 per ounce, or 6.0 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, rose 1.88 percent. The U.S. Trade-Weighted Dollar Index fell 0.84 percent for the week.

Strengths

• Gold had another strong week, reaching an all-time high of $1,867.95 an ounce on Thursday with renewed concerns over the European debt crisis. Gold is continuing to find favor among investors for mitigation against falling asset prices. With gold being one of the few assets that is uncorrelated with market returns, it has played a vital role in portfolio diversification.
• The World Gold Council (WGC) published their latest results. The WGC highlighted that strong demand in India and China, coupled with an overall drop in recycling activity this quarter, demonstrates that these regions have adjusted to the current price environment and expect the upward price trend to continue.
• As prices of gold are reaching all-time highs, silver has also experienced a big rise, particularly in the Middle and Far East, as we see a strong trend towards silver purchases as an investment with a number of precious metals dealers reporting much higher demand for silver than for gold at current price levels.

Weaknesses

• Overall, senior and mid-tier gold miners faired about the same in term of relative performance with a gain of roughly 3.4 percent, however the TSX Venture Exchange fell almost 3 percent, putting pressure on the junior mining sector. RBC gold analyst team reported earlier in the week that there is very little appetite for riskier mining assets, including, early stage exploration companies, miners in Africa or Southeast Asia and/or companies with single mine assets outside of North America.
• TD Securities Bark Melek warned investors that “gold is set to continue its short-term correction after its stellar performance.” Investors are questioning how high the price of gold really can go before a mean reversion materializes.
• The WGC noted that overall gold demand fell 17 percent in the second quarter relative to same quarter in 2010 mainly due to a slow down in investment demand in the private sector. Interestingly, Central Banks’ purchases more than quadrupled for this same period.

Opportunities

• With the rise in bullion this week it was a relief to see the majority of the gold stocks buck the down trend in the general equity prices. The huge spread that has developed this year between the performance of gold bullion versus the returns of gold stocks has been a major disappoint for gold equity investors. As we saw the CME raise margin requirements for bullion, the continued run in gold might trigger more margin hikes or simply prompt investors to slow down on gold and buy the undervalued equities.
• Venezuela’s President Chavez plans to repatriate the country’s gold reserves held overseas. Traders noted this represents one of the largest moves of physical gold in decades. Venezuela noted the move was part of a strategy to shift assets away from European and American custodial institutions to ensure their safety.
• Contrary to silver’s “devil metal” reputation for being extremely volatile, in the past several weeks, while gold has seen some wild fluctuation up to above $1,800 and back down again, silver has hardly moved, staying firmly in the $38-39 range. Silver has been one of the least volatile investments during this period, and has lagged gold lately.

Threats

• A Grant Thornton International report warned that government intervention threatens global mining. The three key intervention areas identified by Grant Thornton include taxation, nationalization/indigenization, and environment. The report asserts that these interventions are motivated by financial and political pressure.
• It was confirmed Wednesday that Namibia has withdrawn a proposal to increase the tax on non-diamond miners to 44 percent from 37.5 percent and instead will propose a windfall tax when international prices are high. Namibia is one of 25 countries globally that was considering increasing its take of the mining industry’s profits.
• Papua New Guinea shocked the resource world by proposing to hand over mineral rights to the local landowners. While this may be extremely disruptive in the short-term, this would create a tremendous amount of wealth, free of unencumbered political issues. From an earlier study by Jude Wanniski, author of “The Way the World Works,” he noted that roughly 90 percent of all the oil and gas wells ever drilled were done in Canada and U.S. because land-based mineral rights are held in the private sector, not by government.

Tags: All Time Highs, Asset Prices, Canadian Market, Debt Crisis, Dollar Index, Exploration Companies, Gold Equities, Gold Market, Gold Miners, India, Melek, Philadelphia Gold, Portfolio Diversification, Precious Metals Dealers, Price Trend, Relative Performance, Silver Index, Spot Gold, Stellar Performance, Td Securities, Tsx Venture Exchange, World Gold Council
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Neils Jensen: The Commodities Con

Thursday, May 6th, 2010

“There is a very easy way to return from a casino with a small fortune: go there with a large one.”

Jack Yelton

I promise you – no mention of Greece in this month’s letter. Over the past few months, I have been eating it, drinking it and sleeping it to the point where I need a break.

Instead I will focus on another issue close to my heart – commodities. In last month’s Absolute Return Letter I raised a yellow flag concerning the short term outlook for commodities . Quite a few readers asked me to elaborate on that, which is precisely what I am going to do. In the following, my assessment will be based on the following three observations:

• Financial demand is growing much faster than industrial demand;
• The Chinese have aggressively stockpiled over the past 12-15 months;
• Most investors do not understand the complex nature of commodity investments.

Rising demand

Let’s begin with the rapidly rising demand for commodities from financial investors. Their allocation to commodities has grown dramatically in recent years – to the point where commodities have become a mainstream asset class. According to Barclays Capital, total commodity linked assets under management grew 36% last year to $257 billion, with ETP programmes growing even faster (+48% to $92 billion).

Chart 1:      Worldwide Commodity Assets under Management

Source: Barclay’s Capital, Financial Times

Investors typically allocate to commodities in order to:

• further their portfolio diversification;
• generate absolute (presumably uncorrelated) returns; or
• benefit from the growth of emerging economies – first and foremost China.

Chart 2:     Why Invest in Commodities?

Source: Barclays Capital

Again, according to Barclay’s research, investors have an affinity for ETPs. Only a few years ago, commodity linked ETPs were a rare phenomenon; however, in recent years it has grown to become the product of choice for many commodity investors (see chart 3). Not a smart choice. Here is why.

Chart 3:     The Choice of Product

Source: Barclays Capital

Beware if you are the market

Many commodity markets are surprisingly small and index linked products such as ETPs have become a larger and larger proportion of the market. As a result, commodities have increasingly become financial rather than real assets – a fact which is still lost by many investors (as I learned many moons ago, if you are the market, you are in trouble!). Chart 4 below illustrates the ratio between physical and financial futures contracts in the crude oil markets. Over the past 15 years, financial futures have grown from 2 times the size of physical markets to almost 12 times the size.

Source: Masters Capital Management

If you question the effect financial investors have had on oil prices, I suggest you take a look at chart 5 below which depicts the WTI oil price against total assets under management in passive commodity linked strategies. Although I am very much aware of the dangers of confusing correlation with causation, it is hard not to conclude that financial demand has at least played some role in the run-up of oil prices in recent years.

Chart 5:      Passive Commodity Index Investments (USD billion)

Source: Masters Capital Management

And it is not only energy related products which have been in strong demand from the financial community. The commodities team at Royal Bank of Scotland have found that export driven demand for both agricultural, mining and energy related commodities is dwarfed by the financial demand for those same commodities (see chart 6).

Chart 6:  Percentage change of volume of exports vs. notional value of OTC commodity linked derivatives outstanding, 1998-2008

Source: Royal Bank of Scotland

China’s master plan

Furthermore, because commodity markets are tiny compared to the size of financial markets, prices are easily distorted. In this respect, it is worth paying particular attention to the behaviour of the largest nation on earth – China. The bull market in commodities is intimately linked to the growth story of China; hence commodity investors are well advised to listen to the signs of policy change emanating from the political leadership in China. And there can be no doubt that there is, at present, a desire to cool down things a notch or two. Only in the last few days, China has (for the third time this year) increased the reserve requirement ratio for Chinese banks. Deutsche Bank now expects growth in Chinese infrastructure spending to be slashed from 120% last year (!) to just 5-10% this year. Industrial metals such as lead, zinc, copper and nickel are particularly sensitive to such investments.

It is broadly accepted that China stockpiled commodities en masse last year, although reliable data is notoriously difficult to get your hands on. One good source is Royal Bank of Scotland who has thoroughly researched the commodities space. They have found a ferocious appetite for industrial metals from Chinese buyers throughout 2009 (see chart 7).

Chart 7:      The Chinese stockpiling of industrial metals (thousand tons)

Source: Royal Bank of Scotland

So what is China up to? If spending programmes are to be slashed this year, growing infrastructure spending hardly seems the most likely explanation behind the buying spree. Maybe the Chinese just happen to be bullish on commodities longer term and want to secure supplies. Or perhaps China is driven by the seemingly imprudent behaviour by Washington. After all, China sits on the largest foreign currency reserves in the world – about $2.4 trillion, $878 billion of which are held in US treasuries . Perhaps China suspects that Washington may be only too happy to engineer a covert default on its debt by allowing the continued print of money? Chinese Head of State Wen Jiabao actually alluded to this last spring when he stated:

“We have lent a huge amount of money to the United States, so of course we are concerned about the safety of our assets.”

By stock piling commodities on a large scale, Beijing is effectively placing their excess dollars in hard assets rather than buying the more dubious paper assets, also known as US treasuries. And, as China continues to outgrow the rest of the world, they would have had to buy those commodities anyway, so the strategy makes plenty of sense.

Or could the stockpiling be a reaction to the increasingly hostile American stance on China, as far as the bilateral trade situation is concerned? By stockpiling commodities China has effectively turned its large trade surplus into a deficit, making it much harder for Washington to argue that Beijing should allow its currency to appreciate in value. Whether it is one or the other explanation, it looks like Beijing has very much outsmarted Washington with these manoeuvres.

The obvious challenge facing commodity investors is that with Beijing attempting to engineer a slowdown of the Chinese economy and with much of its commodity buying already behind it, is it really a good idea to pile in at current levels? As already alluded to earlier in this letter, there is no denying that the long term outlook for commodities continues to be bullish; however, things do look a little bit too perky for my taste in the short term.

Ever heard of contango? The third and final reason for advocating a more cautious stance on commodities – at least in the near term – has to do with the complexity of commodity linked products, little of which is understood by the majority of investors. Take a look at chart 8 below which illustrates the spot price on oil as measured by West Texas Intermediate (WTI) against one of the largest oil ETFs called United States Oil Fund (ticker symbol: USO).

The ETF has underperformed the benchmark WTI spot price – against which it is pegged – by a whopping 68% since January 2009! Investors have been conned into believing that if they invest in USO, they effectively buy the WTI oil price. In reality they buy an ETF which is so far off the mark that it is almost criminal. And USO is by no means the only ETF which has consistently underperformed, although it is probably one of the worst of its kind. Nobody cared to explain to hopeful investors about a subtlety called contango. Here is what you need to know in order not to fall into the trap:

Investing in the spot market is not a viable solution for most commodity investors; hence most of us invest in commodities through futures. The market can either be in backwardation or in contango. When a market is in backwardation, the future is priced lower than the spot price. When you roll your futures position you will benefit from what is called a positive roll yield. Backwardation is often (but not always) linked to low inventories when immediate delivery comes at a premium.

Chart 8:     WTI Oil Price versus United States Oil Fund (Jan 09 – Apr 10)

WTI (spot)

+93%

USO (ETF)

+25%

Source: Bloomberg

On the other hand, when the future is priced higher than the spot price, the market is said to be in contango and the roll yield is negative. Herein lies the problem . Most commodities are in contango more often than not, effectively costing investors the spread between the nearby future and the more distant future every time the position is rolled. Oil has been in contango pretty much constantly since 2005 (with a brief interruption in late 2007 – early 2008) with the contango being exceptionally steep in 2009, most likely a function of the global recession where oil was not in short supply.

Not only do you suffer from a negative roll yield every time the market is in contango but, as a passive investor, you are a sitting duck for more active investors keen to take you out. It is simply too easy for professional traders to jump in front of these large passively managed funds every time they need to roll their positions. Many ETPs have clearly defined – and publicly stated – trading patterns which are only too easy to take advantage of.

Obviously, the theoretical solution to the problem is to invest in the spot market rather than the futures market; however, this is not easily accomplished in most commodity markets. If you buy spot, you need to be prepared to store the physical commodity. This is relatively easy when it comes to non-perishable commodities such as metals but industrial metals would require storage space beyond what most investors have access to. Therefore, typically, only precious metals are traded spot, whereas most other commodities are bought in the futures markets.

Many ETF sponsors are aware of the problem and have taken various initiatives to address it, for example by making trading patterns more opaque by spreading out the rollover trades. However, based on the performance of many commodity ETFs, such initiatives have only been partly successful (please note: this is not a problem for ETFs operating in spot markets such as stock index linked ETFs).

Gold is not without problems

I have not yet mentioned gold. Most gold ETFs have performed pretty much in line with the underlying price of gold, probably because gold ETF sponsors use the spot market rather than the futures market; hence they are not subject to the negative roll yield. However, this raises another set of questions the most important of which is: How certain can you be that your money has actually been placed in physical gold and that this gold is stored in a vault somewhere to support your investment at all times?

Most financial investors buy gold either as an inflation hedge or a disaster hedge. Over time, gold has not been the stellar inflation hedge that most investors seem to think it is, but it has worked quite well as a disaster hedge. In Q4 of 2008, it was one of very few asset classes posting gains. By no stretch of the imagination am I a gold bug, but I can see the rationale for owning gold given the path we are on at present with Greece (sorry, promised not to mention that word!) potentially being the precursor for what is to come in many other countries. If that were to happen, gold would almost certainly be the best performing asset class which you can buy in size.

I just wish it were that simple because, in a world where we face unprecedented and systemic problems, the risk we face will not only be sovereign risk but counterparty risk at all levels. In that sort of environment there is no guarantee that the ETF sponsor will in fact be around to honour its obligations to you when you most need it. Some gold ETFs are based on synthetic trades (i.e. no physical gold stored); other ETFs do not issue actual guarantees that there is always physical gold to support the ETF exposure one-for-one. Therefore, if you choose to buy gold through ETFs, it is effectively like depositing money in a bank where the rate of interest is equal to the move in the price of gold. It is a financial asset; not a physical asset. If you have bought gold as a disaster hedge, you may want to think twice about getting your gold exposure this way.

Conclusion

So where does that leave us? It is my conviction that commodity prices have at least partly been driven not by fundamental demand but by demand from financial investors eager to diversify their equity risk and attracted to the seemingly high probability of generating uncorrelated returns. Little do these investors seem to understand that because they now are the market, the promised land of uncorrelated returns is little more than wishful thinking.

Chart 9:     Chinese Stock Market Leads the CRB Index by 4 Months

Source: Gluskin Sheff

David Rosenberg at Gluskin Sheff recently produced a fascinating chart (see chart 9), suggesting that there is indeed a strong link between Chinese stock market prices and commodity prices. The Shanghai index leads the CRB commodity index by four months with a 72% correlation (80% with oil prices). Oil, in particular, seems to have become a financial asset and will hence correlate with other financial assets. Supply and demand for oil (the commodity) has become a secondary factor in determining oil prices; supply and demand for the financial asset named oil hold the key to future performance.

Furthermore, as hordes of increasingly disenchanted investors, who thought that ETFs and other index products offered an easy solution to commodity investing, want out of these products, commodity prices could come under substantial pressure, at least temporarily. Again, let me emphasize that this view does not alter my belief that long term, many commodities are likely to do very well as emerging economies require ever rising amounts of oil, copper, nickel, wheat, etc. etc.

So what do you do if you want exposure to commodities? With the exception of precious metals, investing in commodities through the spot market is not a viable option. That leaves you with three options:

• Invest only in commodities when they are in backwardation (not recommended as it may keep you out of the market for long periods of time);
• Treat ETPs as short term trading instruments, not long-term holdings, which will eliminate much of the problem associated with contango (may be an appropriate strategy for some investors although it has its limitations); or
• Invest through active managers who can handle this highly complex problem on your behalf.

I am a great believer in using active managers in the commodity space, as the unique set of challenges confronting commodity investors requires expertise that most of us don’t possess. We run an interesting strategy which offers an alternative way to get commodity exposure without the tracking error of ETFs. Moreover, the strategy is based on relative value, so it can make a profit whether prices go up or down. If you would like to hear more, give us a bell or email us (details on the last page of this letter).

Niels C. Jensen

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This material has been prepared by Absolute Return Partners LLP (“ARP”). ARP is authorised and regulated by the Financial Services Authority. It is provided for information purposes, is intended for your use only and does not constitute an invitation or offer to subscribe for or purchase any of the products or services mentioned. The information provided is not intended to provide a sufficient basis on which to make an investment decision. Information and opinions presented in this material have been obtained or derived from sources believed by ARP to be reliable, but ARP makes no representation as to their accuracy or completeness. ARP accepts no liability for any loss arising from the use of this material. The results referred to in this document are not a guide to the future performance of ARP.  The value of investments can go down as well as up and the implementation of the approach described does not guarantee positive performance.  Any reference to potential asset allocation and potential returns do not represent and should not be interpreted as projections.

Tags: Absolute Return, Affinity, asset class, Assets Under Management, Barclay, Barclays, Barclays Capital, China, Commodities, Commodity Investments, David Rosenberg, Emerging Economies, ETF, ETFs, Etps, Financial Investors, Financial Times, Gold, Neils, Portfolio Diversification, Rare Phenomenon, Small Fortune, Term Outlook, Yellow Flag
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