Nelson Louie, Global Head of Commodities in Credit Suisse's Asset Management division, said, "Commodities were lower in December, ending an already volatile fourth quarter. Broad-based commodities indices essentially traded sideways in an extremely volatile range, as investors continuously re-evaluated the European debt crisis' potential impact on the global economy. Despite these headwinds, the global manufacturing PMI actually improved in December. We believe this may reflect underlying strength in the US and key emerging markets."
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, "Fundamentals for key commodities largely remain supportive, with generally tight inventory levels and continued strong demand. The threat of supply shocks is particularly acute for the crude complex and Agriculture. While Precious Metals have lost their luster of late, demand for currency alternatives and hard assets is likely to remain strong amid continued loose monetary policies. We believe investors may derive long-term diversification benefits in conjunction with potential inflation protection through a strategic allocation to commodities."
The Dow Jones-UBS Commodity Index Total Return was down by 3.75% in December. Overall, 12 out of 19 index constituents decreased in value. Precious Metals was the worst performing sector, down 11.44% for the month, as a result of strong demand for US dollars, eroding demand for currency alternatives. Energy ended the month down 5.58%, as Natural Gas weighed on the sector. Warmer-than-normal temperatures for the start of the heating season in the US increased expectations for increasingly bloated inventory levels. Industrial Metals were also lower, losing 4.25%, in response to the potential impact of macroeconomic headwinds on Chinese demand. Livestock was also lower, down 4.04% for the month, despite the release of the USDA's November Cold Storage Report which revealed the lowest level of frozen meat and poultry inventories since 2003. Agriculture was the best performing sector, up 4.03% for the month, supported by hot and dry weather in Argentina and Brazil during the critical pollination period.
The Credit Suisse Total Commodity Return Strategy group periodically produces updates on relevant industry topics. For a copy of the team's white paper, "Commodities Outlook: Increased Volatility, Increase Opportunity?", please contact your Credit Suisse Relationship Manager.
About the Credit Suisse Total Commodity Return Strategy
Credit Suisse's Total Commodity Return Strategy has been managed for 17 years and seeks to outperform the return of a commodities index, such as the Dow Jones–UBS Commodity Index Total Return or the S&P GSCI Total Return Index, using both a quantitative and qualitative commodity research process. Commodity index total returns are achieved through:
Spot Return: price return on specified commodity futures contracts;
Roll Yield: impact due to migration of futures positions from near to far contracts; and
Collateral Yield: return earned on collateral for the futures.
As of December 31, 2011 the team managed approximately USD 10.6 billion in assets globally.
An investment in commodities is not a complete investment program and should represent only a portion of an investor's portfolio management strategy. Investment in commodity markets may not be suitable for all investors. Commodity markets are highly volatile and the risk of loss in commodities and commodity-linked investments can be substantial.
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This document was produced by and the opinions expressed are those of Credit Suisse as of the date of writing and are subject to change without obligation to update. It has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of Credit Suisse to any person to buy or sell any security. Any reference to past performance is not a guide to future performance. The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable but Credit Suisse does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Certain information contained in this document constitutes "Forward-Looking Statements" (including observations about markets and industry and regulatory trends as of the original date of this document), which can be identified by the use of forward-looking terminology such as "may", "will", "should", "expect", "anticipate", "target", "project", "estimate", "intend", "continue" or "believe", or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties beyond our control, actual events, results or performance may differ materially from those reflected or contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on such statements. Credit Suisse has no obligation to update any of the forward-looking statements in this document.
Certain risks relating to investing in Commodities and Commodity-Linked Investments: Exposure to commodity markets should only form a small part of a diversified portfolio. Investment in commodity markets may not be suitable for all investors. Commodity investments will be affected by changes in overall market movements, commodity volatility, exchange-rate movements, changes in interest rates, and factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Commodity markets are highly volatile. The risk of loss in commodities and commodity-linked investments can be substantial. There is generally a high degree of leverage in commodity investing that can significantly magnify losses. Gains or losses from speculative derivative positions may be much greater than the derivative's original cost. An investment in commodities is not a complete investment program and should represent only a portion of an investor's portfolio management strategy.