Technical University Munich Commodities as an Asset Class - risklab

2.3 Trading Commodities
this, they are designed to meet investors needs and separate them from commodity
producer and consumer requirements.
Finally a regulatory change in commodity mutual fund markets will force the demand
for commodity linked interest rate securities.
2.3.1.5 Certificates
A common vehicle to get commodity index exposure in Europe are certificates.
Formally they securitize an obligation of the issuer with a regularly claim for interest
coupon payments. That means that the investor does not purchase stocks or shares
of a mutual fund, he simply lends his money to the issuer. Certificates generally
replicate the price evolvement of an underlying stock or index and therefore count
into the group of derivatives. A major characteristic of derivatives is to have a
maturity: so do certificates. Nowadays, there are open-end versions, which include
an internal rolling mechanism. 50
Certificates emerge the whole credit risk of the issuer what makes them an unattractive
investment vehicle for institutional investors but they are very famous in retail
business. The drawbacks of covered overpricing and credit risk are little communicated.
But their major advantage is high liquidity. Over this, certificates are generally
available in many customized versions including refunding conditions equipped
with guarantees, bonuses, caps and/or currency risk hedging facilities. Following
[Zagst e.a. 2006] they can be a performance increasing addition to traditional stock
and bond retail portfolios.
2.3.2 Managed Futures Funds
Managed futures funds are managed by commodity trading advisors (CTAs). These
trading advisors manage client’s assets by using global futures markets as an investment
medium. This is the main difference between a CTA and an ordinary trader.
Former have research based investment strategies, including diversification over different
markets, risk managing and loss limiting systems whereby ordinary traders
generally are generally just experts in one market. In contrast to traders, who are
usually 100% in the market, CTA’s mainly just invest 10-25% of the assets under
management to absorb losses while waiting for profitable trades. 51
50 See [Gong Huber Lanzinner 2006].
51 See Managed Account Research, Inc.;
http : \ \ www.ma − research.com \ managed account vs self − directed.html
39