Why invest in commodities? How to invest in commodities?

Historically, the process of building investment portfolios has focused on two asset classes: stocks and bonds, although in recent years investors have become increasingly interested in finding non-traditional assets with potential to increase performance, smooth volatility, or both if possible.
Thus the interest in raw materials, in particular, has increased as investors have found exposure to natural resource prices a "third asset class" with which optimize traditional portfolios of stocks and bonds .
The great returns generated by the asset class historically may serve as further evidence of the enormous potential of raw materials . However, the raw materials are complex assets and options that investors have access to this asset class are often complicated and difficult to understand. On the other hand there is a universe of possibilities in raw materials, with dozens of families and specific assets, many of which risk profiles / return drastically different.
Commodities are risky assets , but the understanding of the components of the prices and details of investment vehicles that offer exposure to these resources can lead investors to this asset class used efficiently and as a vehicle investment.
The classification as a commodity focuses on the concept of fungibility, which means that the products are treated as equivalent or exchangeable for end users and financial investors alike. In essence, the fungibility requires standardized identical physical properties, being similar consumables regardless of where they occur or where they are. Gold is perhaps the best example: a bar of gold in London is the same as a bar stocked in New York and Singapore. Light, sweet crude oil is light sweet crude oil, regardless of whether they reside in a tanker in the middle of the Atlantic or a pipeline in Louisiana.
The possibility of exchange is a fundamental concept in commodity markets and standardizing the market and enables investors worldwide market large volumes of goods daily.
The possibility of exchange with respect to raw materials simplifies the valuation of these assets significantly, prices of commodities are derived from the supply and demand only. Of course, predict and understand the factors of supply and demand is not easy, but the pricing equation in the raw materials is extremely simple.
Market segmentation Product: forking raw materials in soft commodities and hard commodities. Soft commodities grown in plants or trees as extracted from the soil hard. Soft Commodities are many agricultural resources such as corn, wheat, sugar, cattle and soybeans. Hard Products include industrial and precious metals such as gold, copper, nickel, silver, platinum, and zinc. Also falls under the classification "hard" petroleum products such as oil and natural gas Brent or WTI.
A more detailed commodity is to segment the market into product families that generally have similar physical properties and uses. The six major product families include:

1. Precious Metals: Gold, silver, platinum and palladium all fall under this category.
2. Industrial Metals: This category includes metals that are generally less expensive than precious metals and more used in sectors such as construction and industry
3. Agricultural products: This category includes natural resources that are frequently used for human consumption, including corn, wheat and soybeans.
4. Livestock: This category includes animals, livestock generally much beef as pork.
5. Energy: Raw materials related to energy production are among the most actively traded, this category includes crude oil in its two variables Brent and WTI, natural gas, and other mixtures and derivatives such as gasoline, diesel and furnace oil .
6. Perishable: In this category, sometimes grouped with other agricultural products include coffee, cotton, sugar, cocoa and orange juice.

Why invest in commodities?

Commodities are assets that have unique and cash flows associated with the underlying asset: a gold bar will never generate cash or make a dividend payment, and a wheat field never made a coupon payment or repayment on investment.
The appeal of raw materials is the ability of the asset class of smoothing overall portfolio volatility and protecting against certain adverse economic environments with low probability but high impact event in returns. inversely Adding assets correlated to a portfolio has the effect of smoothing the overall volatility, since it is unlikely that these components move in the same direction simultaneously. Thus mainstream appeal of the products lies in the correlation or lack thereof to traditional asset classes like stocks and bonds with the consequent potential to reduce overall risk.
Of course at the expense of reduced volatility of returns is not the desire of an investor, although there is evidence to suggest that the raw materials have historically delivered appreciation while overall lower volatility. in other words, the raw materials can provide the best of both worlds when it comes to asset allocation strategies.
The inflation coverage is a major concern for all investors, especially those living on fixed incomes, as the rise in prices erodes the purchasing power of existing wealth yields and eats all kinds of assets. On this side another attractive aspect of the raw materials is the ability of the asset class to act as a hedge against inflation due to the appreciation in value when inflation kicks in, which offset losses elsewhere (dividends, coupons, interest, rents) of the portfolio as a result of a general price increase. Inflation is an increase in prices, and as such, usually include an increase in raw material prices that are inputs into goods and manufacturing processes. In other words, inflation probably will not happen unless the prices of raw materials, including oil, metals and agricultural products become more expensive.
On the other side the raw materials can also function as a commitment to the maintenance of world economic growth, and in particular the expansion of emerging economies. Developing economies to supply rapidly urbanizing migration of rural populations to the cities, so it motivates the demand for raw materials to build infrastructure, to feed growing populations, and serve the consumer goods manufacturing. For those who believe that these demographic trends are favorable to increased demand for natural resources, investment in raw materials could be an optimal way to gain exposure to this investment thesis.

How to invest in commodities?

There are four main options for investors seeking exposure to commodities, each of which has advantages and potential disadvantages:

1. Physical exposure: The most basic way of achieving exposure simply involves purchasing and storage of the goods desired. This method ensures the investor exposure to changes in the spot price of raw materials. Unfortunately, physical exposure only makes sense for products that exhibit certain physical standards and involves the maintenance of a sufficient value to weight ratio to keep storage costs to a reasonable level. The storage of gold coins in a safe is one thing, but trying to get physical exposure to crude oil or livestock presents a number of logistical and cost barriers that hinder investment opportunities.
2. Futures Contracts: Developed in the futures markets allow investors to gain exposure to commodity prices through financial contracts with natural resources as underlying assets. While this method simplifies the investment process, it also introduces additional risk factors as the return of such assets derived not only depends on changes in spot prices, but also the slope of the futures curve and the current level of interest rates, and leverage suppose what some investors may feel uncomfortable or even limited by regulation. Futures are contracts created as a hedging tool for producers and traders of raw materials, but speculators have used as an investment vehicle at the same time.
3. Shares: shares in companies engaged in the production or extraction of raw materials. Because the profitability of these companies usually depends on the market price of their products, their perspectives tend to improve with increasing prices of raw materials in question and vice versa.
4. ETCs: Investment Vehicles listed on a stock exchange and traded like stocks that allow investors to gain exposure to commodities individually, sectoral or global. These exchange-traded commodities for benefiting from all the qualities I have outlined above, taking into account certain risks common to futures contracts, as such ETCs replicate indices whose constituents are commodity futures in question.

Below I discuss some tables with cumulative returns for different periods of time, the correlations with key benchmark stock indexes, volatility and Sharpe ratio for each of the reference materials used as ETF Securities ETCs.
 

Precious Metals

Industrial Metals

Agriculture

Energy

how to Invest in renewables energy

In recent years, renewable energy investment has increased in popularity largely because the world is becoming increasingly aware that the current economic model is based on finite resources and this has to change. Although crude oil and other fossil fuels will last us for the foreseeable future, there will come a time when our energy consumption will have to look for alternative and renewable sources.
And here come into play renewable energy, although this sector is still relatively immature in global terms, the growth opportunities presented are huge and it is worth considering exposure to renewable energy.

How to invest in alternative energy?

Biofuels:

Biofuels are an alternative form of energy derived from carbon based organisms. There are many different options including bio-alcohols, biodiesel, green diesel, vegetable oil ... Recently, the International Energy Agency has stated that biofuels have the potential to replace 27% of transport fuels by 2050, effectively reducing emissions greenhouse gases by 2.1 million tons per year. Even some countries already have existing mandates requiring companies to blend biofuels with gasoline, giving these various fuels with high growth potential.
Some companies with which exposure to biofuels, and thereby to alternative energies are:

• Archer-Daniels-Midland Company (ADM) company dedicated to the production of different agricultural commodities and also has many of its operations based in the biofuels industry.
• Methanex Corporation (MeOH): this is a company dedicated to the production and sale of methanol, a chemical that, among other things, is a very popular agent mixed with gasoline. Methanol is also one of the key components of biodiesel. MeOH pays a dividend yield of 2.6%.

Hydropower:

Hydroelectric power has become the most powerful energy alternative at this time, but of the least popular. Hydropower generates water currents moving and exercising more on large dams and rivers.
It is presented as one of the alternative energy sectors with greatest growth opportunity.

• China Hydroelectric Corporation (CHC): This company is engaged in the acquisition, ownership and development of hydropower in China. HCC has assets of $ 77 million.
• Zhaoheng Hydropower Ltd. (ZHYLF.PK): Zhaoheng generates electricity mainly in the southern and midwestern China.

Nuclear:

After the tragedy of Fukushima has questioned the safety of many nuclear plants, and that is why Germany has completely abandoned nuclear power. But with the new facilities are much safer and more efficient nuclear plants like Fukushima, so that investors take into account this energy Fuenta its considerable growth potential.
We expose ourselves to nuclear energy by investing in ETFs or companies related to these materials:

• Market Vectors Uranium + Nuclear Energy ETF (NLR): This ETF provides direct exposure to nuclear energy because it has stakes in companies such as Exelon Corp, Uranium One, and Areva engaged in the manufacture of this alternative energy.
• Uranium ETF (URA) ETF focuses on the mining of uranium it is considered a direct exposure to nuclear energy and impact the growth of this industry.

Solar:

The solar energy sector is the fastest growing developed in recent years, and a favorite for investors. The industry is still relatively small, but has an average growth of 39% annually over the last decade and a strong predictions for the future. For now, China dominates the solar market, and most companies base their operations in emerging markets.
To be exposed to this alternative energy we can choose companies or ETFs:

• First Solar, Inc. (FSLR): This US-based company is one of the best known in the solar energy sector. Even after the death of CEO of First Solar the company's future is uncertain.
• Market Vectors Solar Energy ETF (KWT): This ETF invests in companies that, on a weighted basis, get a 90% or more of their income from the solar energy sector. The main investments of the fund are in companies like First Solar, GT Solar and MEMC Electronic Materials.

Aeolian:

Wind power is one of the most established alternative energy in the world, and many countries have chosen it as an alternative to fossil fuels. Currently, wind power amounts to just over 2% of the world's energy supply, but its growth rate is increasing, and this figure is expected alcanzace 8% in 2018. Like so many other forms of renewable energy, energy companies are hard to find in equities, but this trend will change as the industry continues to grow.

• Broadwind Energy, Inc. (BWEN) sector company wind energies, based in Chicago. Owns more than $ 44 million in assets.
• Iberdrola SA (IBE.MC): This Spanish utility company, is part of your business based on wind energy production by Iberdrola Renovables, so it is an attractive investment option.
• ISE Global Wind Energy Index Fund (FAN): a fund that focuses all his interest in the wind industry. Your participation is divided into different companies, those companies which are exclusively in the wind business receive a higher weight than those with a broader business model.

What other way to invest in renewable energy you know?