FSI Commodity Investing ProgramTM

Recently commodities received a lot of attention as investment class. Various investment banks and scholars published research that shows the benefits of adding commodities to a portfolio in terms of risk-return performance.  Here we will not repeat or summarize this research.

The challenge: How to Invest in Commodities?

A few examples of commodity investment strategies/vehicles:

  1. Commodity futures contracts
  2. Buying and storing commodities
  3. Warehouse receipts
  4. ETC-Trackers
  5. Turbo’s & speeders
  6. Investing in stocks of commodity companies

FSI CMCsTM (Commodity Mimic Companies)

Institutional and private investors have been disappointed with investing in commodities through commodity futures contracts and new financial products such as ETC’s and Turbo’s. The disappointment is caused by the fact that  these instruments do not always track the underlying commodity well caused by amongst others basis risk and negative roll yield. For example, investors assume,  and sometimes the design of the financial investment product implies that, futures, are assets, which they are not: they are commitments to buy or sell a commodity for delivery at a particular point in the future. Commodity futures contracts mature. To be exposed to the underlying commodity, investors need, in the case of futures,  to roll-over their futures position, and often, because of a flawed strategy, lose money in doing so.

Hence there is need for a methodology that determines, based on amongst others, investor objectives and investor capabilities (to store and trade commodities) the optimal strategy to be exposed to spot commodity prices.

FSI Commodity Investing ProgramTM

FS-Innovators B.V. and FS-Innovators USA Inc. developed the FSI Commodity Investing Program that helps investors to realize their objectives. The FSI  Commodity Investing Program includes:

  1. Selection of types and groups of commodities for which exposure is needed in terms of risk-return performance properties in overall portfolio of investor

  2. Selection of investment strategy based objectives and capabilities of investors