Investors can capitalise on the commodity boom

Following remarkable price increases and in anticipation of an upsurge in interest in commodities, Momentum Wealth launches the Structured Commodity Option – a three-year structured investment, linked directly to the performance of a basket of commodities.

Ryan Jamieson (pictured right), Investment Specialist at Momentum Wealth comments: “Much has been publicised regarding the commodity ‘cycle’ or ‘boom’. There is even talk of a commodity ‘supercycle’ in the years ahead. Demand for commodities, from places like China and India, has revived a global scramble for commodities and resources, leading to and supporting prices at record levels. An insatiable appetite for commodities currently shows little sign of slowing down, leading market analysts and commentators to forecast even greater things stemming from this commodity cycle”.

Why invest in commodities?

Commodities have established themselves as a genuine asset class in recent years and have provided investors with diversification and inflation protection.

Not only has the price of commodities been increasing rapidly, they also have low correlation with other (traditional) asset classes. Including commodities in portfolio construction can significantly enhance the diversification of an investment portfolio.

Positive outlook

Unique to the offering from Momentum is a structure that offers investors exposure to the upside of a diversified basket of commodities while guaranteeing all of an investor’s capital if commodities don’t increase. Unlike usual structured products, investors are not locked-in, the product is fully liquid and investors can sell out of the product at any time.

If the value of the basket of commodities increases over a three-year term, investors are guaranteed a 40% return on capital invested. This equates to an effective annualised return of approximately 12% per annum.

If the value of the basket of commodities increases over 40%, investors are guaranteed all of the performance over 40%.

Why a structured commodity basket?

Investing in a basket of commodities provides investors with exposure to the three main commodity sectors: energy, precious metals and base metals. The commodity basket is ZAR denominated, which means that investors are not affected by the Rand/Dollar exchange rate.

Jamieson concludes: “Investors with a positive outlook for a commodity cycle can benefit by allocating 10% or 15% of their portfolio to the Structured Commodity Option. By doing this, they will get exposure to this asset class but with reduced risk as they will not be buying actual shares in underlying commodity stocks.

The Structured Commodity Option is ideal for investors looking for exposure to this market in a liquid product with 100% capital guarantee.”