Commodities Decreased in January as Fundamental Factors Continued to Drive Returns

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Feb 10, 2016, 12:00 ET

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NEW YORK, Feb. 10, 2016 /PRNewswire/ -- Commodities decreased in January, largely driven by fundamental factors, according to Credit Suisse Asset Management.

The Bloomberg Commodity Index Total Return performance was negative for the month, though with mixed performance among individual constituents. 11 out of 22 Index constituents yielded losses.

Credit Suisse Asset Management observed the following:

Energy was the worst performing sector, down 7.31%. Gasoline declined the most amid increasing inventories in the U.S. even as refineries, which had been operating well above normal levels, entered turnaround season. Crude oil and petroleum products continued their sharp decline due to excess global inventories, which were further exacerbated by the return of Iranian exports after sanctions were eased.
Industrial Metals declined 1.39%, led lower by Copper, due to decreased demand expectations after China's producer inflation data came in below expectations, and manufacturing data continued to indicate contraction.
Agriculture decreased slightly, down 0.81%. Sugar declined the most as forecasts for rain in Brazil's key producing regions improved the outlook for growing conditions toward the end of the month. Coffee was also lower on increased production estimates from Vietnam, Indonesia and Colombia.
Livestock gained 1.34% for the month, led by Lean Hogs as the U.S. Department of Agriculture reported increases in pork exports out of the U.S. throughout the month.
Precious Metals was the best performing sector, up 4.76%, Demand for safe haven assets increased amid volatility among financial markets, continued unease over China's economy and increased expectations for easier monetary policies from multiple major central banks.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "The year got off to a volatile start, as continued growth concerns drove U.S. government bond yields and stocks sharply lower. Although these concerns also weighed on commodities, the asset class rallied during the second half of the month, largely driven by crude oil and petroleum products. While sanctions against Iran eased, allowing for oil exports, it may take time for Iranian production to ramp up significantly. Meanwhile, there were signs that the over-supply situation in oil may begin to reverse. Pressure on oil producers intensified as prices continued to decline, leading some companies to issue debt or equity, cut dividends and/or capital expenditures. Supply may need to be cut further if prices remain low."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, "Commodity returns may continue to be impacted by announcements from central banks if stagnant growth and market turmoil persist, undermining the effectiveness of their policies so far. In January, the European Central Bank hinted at further stimulus measures, while the Bank of Japan unexpectedly introduced negative interest rates. Within the U.S., a decline in consumer prices for December decreased future inflation expectations. The U.S. Federal Reserve remains likely to pursue an even slower course of monetary tightening. The market has already rapidly reduced its expectations for further interest rate increases throughout 2016. Continued loose monetary policy expectations for major central banks may lead to inflation risk, should economic growth exceed expectations."

About the Credit Suisse Total Commodity Return Strategy
Credit Suisse's Total Commodity Return Strategy is managed by a team with over 28 years of experience, and seeks to outperform the return of a commodities index, such as the Bloomberg 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 January 31, 2016, the Team managed approximately USD 7.7 billion in assets globally.

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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.

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