ASSETS UNDER MANAGEMENT invested in passive commodity indices have shot up by $75 billion over the past six years to reach an estimated $80 billion. More money is heading in the same direction, but the first wave of easy returns has played itself out. Now investors will have to get smarter to equal or exceed them.
More sophisticated investors are starting to look beyond passive index investing and towards more active styles and more exotic trades. There is no shortage of derivatives on offer from leading investment banks, and the level of complexity possible in commodity instruments is now approaching that seen in other markets. But the direct import of derivative structures familiar in other asset classes is not without its critics.
The market’s traditional players – those that actually produce and consume commodities – are having to adapt to a market increasingly driven by financial investors that have no...
