Investors' interest gains momentum

The growing popularity of commodities as an avenue for building wealth has increased the global total of assets under management (AUM) in this segment by 40 times in the past decade, thanks to a sharp increase in prices and comparatively weak performance by competing asset classes.

According to a study by HDFC Securities, the global AUM in commodities has increased to $400 billion (estimated) by 2011 as compared to $10 billion in 2001. Indian investors have also started parking a part of their assets under global commodities as a matter of portfolio diversification.

Base metals and precious metals have offered exponential returns in the past decade — 555 per cent for silver, 503 per cent for gold and 300 per cent for copper.

 

“As a part of portfolio diversification, five to 10 per cent of overall assets can be diversified into global commodities, primarily in gold. Also, real estate is one area where we advise our clients to invest. Investment in base metals, however, is not advised as of now,” said Joseph Thomas, a wealth management advisor with Aditya Birla Money.

Investment in base metals is relatively new in India. It has primarily been in copper and for daily returns, not on a long term. In fact, though, of the overall global AUMs, an average 40 per cent flow has been witnessed into base metals, half of which is taken by copper, followed by aluminium with around 30 per cent. In India, these metals are yet to catch up as an asset management tool.

“In the last decade, however, the attraction of individual investors has been significantly boosted due to high returns in these asset classes,” said Dicksey Mathew, an analyst with HDFC Securities who presented the study.

Owing to the ongoing uncertainty in the global financial market, led by turmoil in Europe, investors are parking a portion of their funds in gold as a safe investment. This investment is also considered a way of making assets as currency values fall.

The volatility in metal prices is another factor which attracting investors towards commodities. The volatility in base metals has been significantly higher in the current cycle. Also, the emergence of China has changed the global dynamics of metal consumption, the study says.

The study forecasts that the rapidly growing interest of investors may take the global AUM in commodities to $470-480 bn, a compunded annual growth of 29 per cent, by end-2012.