AWD Chase De Vere says commodities remain a high-risk investment and a volatile asset class despite posting their best first-half returns in 50 years.
The firm says short term speculation is pushing commodity prices upwards at a “tremendous” speed and says it is vital cautious investors in particular consult their IFA before shifting their investment capital.
Anthony Coyte, head of investment steering group at AWD, says: “The first half of 2008 has seen commodity prices soar while bonds and equities have endured a torrid time.
“It’s little wonder that many investors are wondering whether commodities will make a better home for at least some of their investment capital.”
Coyte says the surge in oil and commodity prices can be attributed to “fundamental supply and demand factors”, adding investors need to understand how commodities fit into their overall asset allocation.
“In theory at least there are good arguments to support sustained price increases, however with huge volumes of speculative monies flooding the market only the fleet of foot will prosper and we believe that cautious retail investors should think carefully before investing in commodities,” he says.
“Using commodities allows you to diversify asset classes with low correlation thus diversifying risk.
“This works at the lower end of the risk spectrum where historically commodities have shown negative correlation to equities, tending to show positive returns when other asset classes suffer.”
Coyte points to the example of the “so-called safe haven” of gold, which fell in value by around 50% in less than six months between 1980 and 1981. “Someone who had invested in them would only have broken even last year”, he says.
“Commodities may well continue to prosper for some time to come, but investment in commodities is a far from safe haven choice for retail investors and anyone tempted should have a serious talk to their IFA to decide whether the risks and returns are right for their personal circumstances.”
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