1. Classification of Commodities Commodities can be classified into 5 key sectors as shown in the table below:

Transcription

1 Commodity Basics

2 1. Classification of Commodities Commodities can be classified into 5 key sectors as shown in the table below: Commodity Sectors Constituents a. Agriculture G r a i n s, V e g e t a b l e o i l s, Fertilizers, Crop protection, Genomics b. Metals & Materials Base Metals: Aluminum, Copper, Nickel, Zinc, Tin Bulk Commodities: Iron Ore, Coking Coal, Bauxite, Steel Others: Soda Ash, Chemicals, Rare Earth Metals c. Precious Metals & G o l d, S i l v e r, P l a t i n u m, Materials Palladium d. Energy C r u d e O i l, N a t u r a l G a s, Refining, Integrated, Energy, Thermal Coal, Alternate Energy e. Services Oil Services, Mining Services and Others 2. Which are the commodities in which one can trade? One can trade in a host of commodities including bullion, spices, metals, energy, etc. a. Bullion Gold and Silver b. Oil & Oilseeds Castor Seeds, Soy Seeds, Castor Oil, Refined Soy Oil, Soy meal, Crude Palm Oil, Groundnut Oil, Mustard Seed, -2-

3 Mustard Seed Oil, Cottonseed Oilcake, Cottonseed. c. Spices Pepper, Red Chilli, Jeera, Turmeric, Cardamom d. Metals Steel Long, Steel Flat, Copper, Nickel, Tin, Steel, Aluminum Zinc ingots e. Fibre Kappa's, Long Staple Cotton, Medium Staple Cotton f. Pulses Chana, Urad, Yellow Peas, Tur, Yellow Peas g. Grains Rice, Basmati Rice, Wheat, Maize, Sarbati Rice, Jeera h. Energy Crude Oil, Natural Gas, Brent Crude i. Others Rubber, Guar Seed, Guar gum, Cashew, Cashew Kernel, Sugar, Gur, Coffee, Silk, Sugar 3. Which are the countries with sizeable commodity resources? Australia, Brazil, Hong Kong, Indonesia, Malaysia, Philippines, Singapore and Thailand are the countries with sizeable commodity resources. 4. What are spot and future prices in commodities? Spot price is that price in the cash market where one buys and sells goods 'on the spot', while future prices are prices of the same commodity at a future date. Therefore, if the spot price of gold is Rs. 14,700 per 10 gms today, the 1month future price could be Rs. 14,800, while the -3-

4 2 months future price could be Rs. 14,950. The difference between spot and futures prices is the cost of carry i.e. interest cost, storing, insurance, etc. Normally futures prices are higher than spot prices. The exception is when the futures prices are lower than the spot price, which is called 'backwardation'. This situation is more common in case of agriculture commodities where due to the arrival of crop on certain future dates; the futures prices would be lower than the current spot price. 5. What are Commodity futures? A commodity futures contract is an agreement between two parties to buy or sell the commodity at a future date at today's future price. Futures contracts differ from forward contracts in the sense that they are standardized and exchange traded. In other words, the parties to the contracts do not decide the terms of futures contracts; but they merely accept terms standardized by the Exchange. 6. What are Commodity Exchanges? Commodity Exchanges are institutions which provide a platform for trading in 'commodity futures' just as how stock markets provide space for trading in equities and their derivatives. They thus play a critical role in robust price discovery where several buyers and sellers interact and determine the most efficient price for the product. Indian Commodity Exchanges offer trading in 'commodity futures' in a number of commodities. Presently, the regulator, Forward Markets Commission, allows futures trading in over 120 commodities. There are two types of Commodity Exchanges in the country of which three are electronic national level exchanges. The rest are regional Commodity Exchanges. -4-

5 7. What does Commodity Exchange Traded Fund (ETF) mean? Exchange Traded Funds that invest in physical commodities such as agricultural goods, natural resources and precious metals. A commodity ETF may be focused on a single commodity and hold it in physical storage or may invest in futures contracts. Other commodity ETFs look to track the performance of a commodity index that includes dozens of individual commodities through a combination of physical storage and derivatives positions. 8. Which was the first Commodity Exchange set up in the world? The first commodity exchange established in the world was the Chicago Board of Trade (CBOT) in the year 1848 by a group of Chicago merchants. These merchants were keen to establish a central market place for trade which was situated in the premises of a flour store during its first four years. Prior to this, farmers too often found no buyers for the grain they had transported to Chicago. Given the high transport costs, they had been left with little choice but to dump the unsold produce in the nearby lake. 9. Which are the leading Commodity Exchanges in the world? The world s major Commodity Exchanges are based on the number of contracts traded in commodity futures. They are as follows: New York Metal Exchange (NYMEX) Chicago Board of Trade (CBOT) Tokyo Commodity Exchange (TOCOM) London Metal Exchange (LME) Shanghai Futures Exchange (SHFE) -5-

6 Intercontinental Exchange (ICE) Central Japan Commodity Exchange (C-COM) New York Board of Trade (NYBOT) Tokyo Grain Exchange (TGE) Zhengzhou Commodity Exchange (ZCE) Source: Bloomberg, Data as on Nov 24, Which Commodity Exchanges are operational in India? India has 22 commodity exchanges which have been set up under the overall control of Forward Market Commission (FMC), Government of India of which the primary exchanges are: Multi Commodity Exchange of India Ltd., Mumbai (MCX) National Commodity & Derivatives Exchange Ltd., Mumbai (NCDEX) National Multi Commodity Exchange of India Limited., Ahmedabad 11. What is the statutory framework for regulating Commodity Exchanges in India? The Commodity Exchanges are regulated by the Government of India under the Forward Contracts (Regulation) Act, The regulator is the Forward Markets Commission (FMC) situated at Mumbai, functioning under the Ministry of Consumer Affairs, Food, and Public Distribution of the Central government. 12. What is current size of commodity investments globally, % of total investments? The trading of commodities consists of direct physical trading and derivatives trading. The commodities markets -6-

7 have seen an upturn in the volume of trading in recent years. In the five years up to 2007, the value of global physical exports of commodities increased by 17% while the notional value outstanding of commodity OTC derivatives increased more than 500% and commodity derivative trading on exchanges more than 200%. The notional value outstanding of banks 'OTC commodities' derivatives contracts increased 27% in 2007 to $9.0 trillion. Global physical and derivative trading of commodities on exchanges increased more than a third in 2007 to reach 1,684 million contracts. Over 40% of commodities trading on exchanges was conducted on US exchanges and a quarter in China. Trading on exchanges in China and India has gained in importance in recent years due to their emergence as significant commodity consumers and producers. 13. What Bench Mark Indices are available to track returns from commodity investments? Commodities' market facilitates trades in real assets unlike virtual assets in conventional markets. There are numerous benchmarks available to track commodity investments globally. Some of the prominent benchmarks include: S&P Goldman Sachs Commodity Index (GSCI) Dow Jones Commodity Index (DJCI) Rogers International Commodity Index (RICI) The S&P GSCI (formerly the Goldman Sachs Commodity Index) serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. The index currently comprises 24 commodities from diverse commodity sectors - energy products, industrial metals, agricultural products, livestock products and precious metals, etc. -7-

8 The Dow Jones - AIG Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities. The Rogers International Commodity Index (RICI) is a composite, USD based, total return index, designed by Jim Rogers in The index was designed to meet the need for consistent investing in commodities through a broad-based international vehicle. The index is perhaps the most diverse commodity index and is calculated from 36 commodities from 11 international exchanges. 14. What is the correlation of commodities with other asset classes? Commodities display a low correlation with asset classes like equity as shown in the table below (correlation of commodities with BSE Sensex) Correlation Coefficient vs. BSE Sensex Correlation YTD Coefficient vs. BSE Sensex Source: Bloomberg, Note: Correlation Coefficient of RICI Index (Commodity) with BSE Sensex (Equity), Data as on 31 Dec

9 15. What has been the performance of commodities as an investment class compared to other assets? Commodities as an asset class have outperformed others across market phases (including bear market, flat markets). The table below gives the returns of RICI Index compared to other indices including Sensex, MSCI Emerging markets, MSCI World etc. Indices Falling Market Flat Rising Market Since 1999 Market Market ( ( ( ) 2007) till date) BSE Sensex % % 4.04% % 76.35% % MSCI Emerging % % -8.55% % 66.19% % Markets MSCI Asia Pacific % % -8.12% % 60.42% % ex Japan MSCI WORLD % % % 73.74% 25.49% 20.05% RICI INDEX 13.50% % 33.26% % 18.72% % Best Performing Index Worst Performing Index Source: Bloomberg, Data as on 31 Dec

10 16. What is the benefit for retail investors in taking exposure to commodities as an asset class? Investors can benefit in several by investing in this asset class: Portfolio Diversification: As evident from the correlation table, commodities have a very low correlation with equities. As such, investors can benefit from diversification across multiple asset classes and thereby reduce their investment risk Hedge against inflation: Commodity prices tend to be positively correlated with inflation compared to equities which tend to under-perform during periods of high inflation. As such in a scenario of increasing inflation, rising commodity prices can help investors offset rise of inflation Optimizing Portfolio Returns: A right mix of commodities and equity in your portfolio can help you benefit from attractive returns while reducing the risks component. 17. What is Mirae Asset Global Commodity Stocks Fund (MAGCSF)? MAGCSF is an open ended equity fund, investing in equity and equity related securities of companies that are engaged in commodity and commodities related sectors / sub sectors / industries, with at least 65% of the corpus invested overseas in Asia Pacific and Emerging Markets. While the fund invests predominantly in commodity sectors like Agriculture, Metals & Materials, Energy etc, it could also invest in stocks of commodity related industries which provide support / services to companies engaged in commodity businesses. -10-

11 18. Where does MAGCSF invest? MAGSCF offers access to investors to commodities sector by investing into commodity stocks of companies in Asia Pacific and Emerging Markets, involved directly or indirectly with the commodities business in categories like agriculture, metals and materials, precious metals, materials, energy, services, etc. Along with varied sectoral exposures in the commodity space, the fund also offers investors exposure to a wide range international companies in commodity related industries for, e.g. oil producers, metal producers and also ancillary companies which provide support/services to companies engaged in commodity business. Investment Objective: Mirae Asset Global Commodity Stocks Fund (An openended equity fund): To generate long term capital appreciation through an actively managed portfolio investing in equity and equity related securities of companies that are engaged in commodity and commodities related sectors/sub sectors/industries, with at least 65% of the corpus invested overseas in Asia Pacific and Emerging Markets. There is no assurance or guarantee of returns. Load Structure: Entry Load: NIL. In terms of SEBI circular no. SEBI/IMD/CIR No.4 / /09 dated June 30, 2009, no entry load will be charged by the Scheme to the investor effective August 1, Upfront commission shall be paid directly by the investor to the AMFI registered Distributors based on the investors assessment of various factors including the service rendered by the distributor. Exit Load: a. Redemption within 1 year (365 days) from the date of allotment (including SIP/STP/SWP): 1.00%, b. Redemption after 1 year (365 days) from the date of allotment - NIL. Asset Allocation: (1) Asia Pacific and/or Emerging Markets Equities and Equity Related Securities (excluding Indian equities and equities related securities) of companies that are engaged in commodity and commodities related sectors/sub sectors / industries: 65% to 100%. (2) Indian Equities and Equity Related Securities, including but not limited to those that are engaged in commodity and commodities related sectors/sub sectors / industries: 0% to 35%. (3) Money Market Instruments / Debt Securities Instruments (Including upto 25% of corpus in securitized debt): 0% to 35%. Statutory Details: -11-

12 Sponsor: Mirae Asset Investments Company Limited. Trustee: Mirae Asset Trustee Company Private Limited; Investment Manager: Mirae Asset Global Investments (India) Private Limited; Transparency: The NAV will be calculated at the close of every working day and shall be published in two daily newspapers and on the website of the AMC. Risk Factors: Mutual Fund investments are subject to market risks and there is no assurance or guarantee that the objectives of the scheme will be achieved. As with any investment in securities, the Net Asset Value (NAV) of the units issued under the Schemes can go up or down depending on the factors and forces affecting the capital markets. Past performance of the Sponsor does not indicate the future performance of the Schemes of Mirae Asset Mutual Fund. The sponsors are not liable or responsible for any loss resulting from the operation of the fund beyond the initial contribution made by them of an aggregate amount of Rupees One Lakh towards setting up of the fund. Mirae Asset Global Commodity Stocks Fund is only the name of the scheme and does not in any manner indicate either the quality of the scheme or its future prospects or returns. Investors in the scheme are not being offered any guaranteed / indicative / assured returns. Please see "Risk Factors", "Scheme Specific Risk Factors and Special Consideration" and "Right to limit redemptions" in the scheme Information Document. Please read the Scheme Information Document/ Statement of Additional Information carefully before investing. Scheme Information Document / Key Information Memorandum cum Application form are available at AMC offices / AMC web-site / Investor Service Centre / Distributors on request (Toll free) customercare@miraeassetmf.co.in Mirae Asset Global Investments (India) Private Limited th Unit No. 606, 6 Floor, Windsor Building, Off C. S. T. Road, Kalina, Santacruz - (East), Mumbai