Goldman Sachs, the bank that popularised commodities investing among pension funds and other conservative money managers, is to launch a commodities index in conjunction with Clive Capital, the largest commodities hedge fund.
The index, which Goldman has started marketing to its clients, will attempt to minimise the risk of large losses by altering its exposure to individual commodities over time. It will be marketed to risk-averse institutional investors such as pension funds, foundations and endowments.
It is the latest in a new generation of commodities investment products known as “active” or “dynamic” indices which are able to shift their holdings as the markets change. The launch comes as investors, who have become increasingly knowledgeable about commodities after a decade of rising prices, are growing cautious that slowing demand growth in the US, Europe and China may interrupt the boom.
“Clients wanted more dynamically managed commodities exposure,” a person familiar with the product said. “These guys have just become more sophisticated.”
The index will track 19 raw materials from crude oil and gold to wheat, sugar and live cattle, taking the components of the Dow Jones-UBS benchmark as its starting point.
Clive Capital will decide each month how much of each commodity the index should hold, but it will not be able to stray entirely from the components of the benchmark, only shifting its holdings between them. Neither will it be able to “short” the market and profit from falling prices as hedge funds can.
The venture links two of the best-known names in commodity markets.
Goldman has the largest commodity division by revenues among investment banks and is credited with attracting the investors to the asset class with the creation of the Goldman Sachs Commodity Index in 1991.
That index, now owned by Standard and Poor’s and called the S&P GSCI, remains the most popular commodities investment product with more than $100bn tracking it, according to S&P estimates.
Clive Capital, run by Chris Levett, a former star trader at macro fund Moore Capital, has an estimated $4.5bn under management. The fund lost 8.9 per cent – or roughly $400m – in the first week of May when oil prices tumbled.
The new index joins a small but rapidly growing selection of similar products, as banks rush to cash in on what some see as the next trend in commodities investing.
Credit Suisse offers an index whose allocations are determined by Glencore, the trading house, while Barclays Capital, UBS and Merrill Lynch all have indices weighted according to the views of their analysts.
Several others are working on their own variations on the theme: Macquarie, for example, is planning an index based on the views of its well-regarded commodities research team.