Global Investment House “Global” announced today that its Zenith Fund is eyeing the strong opportunities in the commodity space,, in line with the Fund’s strategy to invest in the most attractive asset classes to generate robust returns for investors through different market cycles and conditions.
Shailesh Dash, Head of Alternative Investments at Global pointed out that heavy energy demand that has been spurred by industrialization, especially in emerging economies where demand for oil has surpassed that of North America. Demand for industrial metals has been spurred by urbanization as millions of poor farmers worldwide have been abandoning their rural lives and moving to cities.
He continued, to accommodate this population influx, cities are developing real estate and supporting infrastructure which increases demand for industrial metals, as witnessed by the recent record prices for steel. Agricultural commodity demand, meanwhile, is a function of population growth.
It is worth mentioning that the world’s population is forecasted to reach 8 billion by 2025, up from approximately 6.5 billion today and people will need to consume meat, poultry, and other agricultural products to survive. The rise in the use of bio-fuels and the increase in global wealth levels have also brought an increase in demand for agricultural commodities for use as energy or cattle feed.
“The Zenith Fund is a multi-asset class fund of hedge funds that will emphasize investing in funds that can capitalize on the attractiveness of the commodity space going forward.”
Dash also pointed out the effect of supply shortages on commodity prices. Oil production, for example, is being hampered by significant under investment in refineries, while escalations in the cost of extracting metals and limited farmland capacity are constricting industrial metal and agricultural supplies, respectively.
Meanwhile Joseph Joseph, Head of Hedge Funds at Global, added that the fund aims to generate significant returns for clients by “utilizing a strategic asset allocation approach based on macro and micro economic outlook and asset class-specific investment themes.”
“We believe these structural factors such as population growth, supply constraints and increased economic activity, especially among the BRIC countries, will make the risk/return characteristics of commodities very appealing,” Joseph added. “By overweighting our commodity exposure in the fund, we aim to make the most of the attractive opportunities present in this market segment.”
The Fund hopes to further take advantage on the great bull run the commodity markets have seen since the end of the last century. The Dow Jones AIG Commodities Total Return Index, a diversified broad based commodities benchmark, has been compounding at an annual rate of 13.9% from 1999-2007, after averaging only 1.5% from 1991-1998.
Moreover, it is worth mentioning that although fundamentals may point to a good long term story, each commodity faces unique conditions and some prices may suffer in the short term. The solution, then, is to focus on investing with managers who employ a sound trading strategy, have diversified and well researched exposures, and are capable of offering strong downside protection as well as upside gains.
Joseph concluded by saying that The Zenith Fund will benefit from Global’s dynamically evolving Hedge Funds team who have invested across over 80 different hedge fund managers. The team implements a thorough investment approach and strict risk management guidelines to generate absolute returns.
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