Schroders' commodities strategy aims to outperform the simple average of the four major commodities indices (S&P GSCI TR, TR/J CRB, BCOM TR, RICI TR) with a lower level of volatility.
Schroders began managing commodities in October 2005. The strategy is managed by a dedicated team based in London and supported by the global resources of the entire Schroders group. The investment opportunity set includes more than 60 commodities and the strategy invests in both commodity futures, commodity swaps and commodity-related equities. Rigorous risk controls place strict limits on the maximum exposure to any single commodity as well as to sector, instrument and cash. Cash/collateral positions are solely invested in US Treasury Bills with less than 12 months maturity.
The Schroders commodity strategy is managed by a dedicated team based in London. Geoff Blanning, Head of Commodities and EMD, is the lead portfolio manager for the commodities strategy and responsible for analyzing the energy sector. James Luke, a metals researcher, analyzes the metals sector. Rodolphe Roche, an agricultural economist, analyzes the agricultural sector. John Coyle and Mark Lacey undertake commodity equity analysis and act as an interface between the commodities team and the relevant Schroders equity analysts. They are supported by the global resources of the Schroders group including the economics team, and the commodities-related equity and fixed income analysts.
We believe that over a market cycle, an actively-managed commodities portfolio will produce higher returns at a lower level of volatility than a passively managed portfolio.
The investment approach emphasizes active management within an index unconstrained opportunity set. The strategy is long only and does not employ leverage. Fundamental analysis drives the investment process with quantitative, technical and sentiment analyses playing key supporting roles. Equal emphasis is placed on each of the three key commodity sectors: agriculture, energy and metals. Investments are made on a medium-term time horizon.
The investment process makes a distinction between Market Analysis, which encompasses the identification of trends and resulting opportunities, and Portfolio Construction.
Global conditions for commodities are discussed monthly. A broad investment framework covering major themes in the market is then created encompassing global and sector outlooks (agriculture, metals, energy) and long-term chart analysis (technical analysis).
Commodity Analysis forms the core of our investment process. Major commodities are reviewed one to two times a year. The investment team meets on a weekly basis to review the global commodity markets. Any potential changes to strategy and allocation are discussed at these meetings. Individual commodity analysis is discussed in depth at these meetings using fundamental, quantitative, technical and sentiment analysis.
Fundamental Analysis involves the relevant analyst producing a detailed report on the commodity under discussion. This includes a review of supply and demand factors and a full statistical analysis of supply/demand balances. The report sets out 3- and 12- month price forecasts for the commodity together with an anticipated 12 month price range.
Quantitative Analysis involves the production, where relevant, of multi-linear models for each commodity. Each model contains 3-10 key factors specific to each commodity and is constructed using 30-50 years of historical data. Ongoing back-testing for both full- and sub-periods seeks to ensure the validity of the models.
Technical Analysis examines chart analysis for each commodity. Daily, weekly and monthly charts are produced using the following technical tools: Bollinger Bands, stochastic, Mac-D, PTPS, moving averages and trend lines.
Sentiment Analysis covers market positioning. We use a wide range of data including the net non-commercial positions in each traded commodity and ETF holdings and flows.
Portfolio Construction: While benchmark unconstrained, the strategy employs strict diversification rules. A position in a commodity is only initiated when analysis indicates an attractive risk/reward opportunity. Averaging down is avoided while the strategy will aggressively average up as price action confirms analysis. Profit targets are set which trigger sales when reached. Up to one third of the portfolio can be held in cash to control downside volatility. Cash positions are actively managed and are invested solely in Treasury Bills with less than 12-month maturity.
- Index-unconstrained opportunities with active management
- Long-only strategy; does not use leverage
- Equal emphasis placed on each of the three key commodity sectors: agriculture, energy and metals
- Separate Accounts
- Commingled Vehicle