The development of the commodities markets was a key theme of the SGX Commodities Day in London so it was interesting to hear from S&P Global Indices about the work that firm is doing to improve access to the underlying commodities markets.
Fiona Boal, global head of commodities and real assets at S&P Dow Jones Indices, told the delegation: “What I want to talk about today is commodities from a commodity real-money investment perspective so clients that use our indices either as a financial product, an ETF, mutual fund or OTC swap, they are looking at commodities as part of a broader portfolio.”
She added: “We tend to think of ourselves as at the end of the supply chain. We need benchmark prices to exist, we need the futures markets to exist and, at the end of it, we can create a financial index that can be used as the basis for a financial product.”
S&P Dow Jones Indices was created by S&P Global, News Corp and CME Group in 2012, and offers a range of benchmark indices including the S&P 500 and Dow Jones Industrial Average. In commodities, its leading index is the S&P GSCI Commodities Index.
Recently, S&P Dow Jones Indices has been developing more thematic products, so indices that offer investors more granular exposure to firms that share aspirations such as lower carbon emissions or promoting diversity in the workplace.
Boal told the delegation: “I want to focus on some of the thematic opportunities that we have seen clients take real interest in, even in just the last 12 months. So think about this as beyond commodity beta. Investors, whether a pension fund, a family office or even a retail investor, have become more sophisticated in the way they think about their commodity exposure.”
For example, S&P Dow Jones Indices launched in September a Paris-aligned climate bond index that aims to comply with the European Union’s Paris-Aligned Benchmark while including other green factors.
Boal added: “We offer index products that might have just a specific sector exposure or down to an individual commodity exposure, and increasingly we will offer indices that offer thematic, or what you might in the equities space call factor type exposure. Examples include the S&P GSCI Electric Vehicle Metals and the S&P GSCI Global Voluntary Carbon Liquidity Weighted indices.”
Boal said S&P Dow Jones Indices offers more than 7000 indices though she admits some firms will know better its flagship commodities product: “The S&P GSCI, which is the broad-based benchmark beta product in the commodity markets, has been around for a long time but it is not all we offer when we talk about offering products to investors.”
In a year of weak performance in equities and fixed income, however, the main S&P Commodities Index has been a stand-out performer.
“The S&P GSCI is up 35% year-to-date. That performance has been very different within sectors. We have talked today about China and we had seen the industrial minerals space had struggled this year in contrast to the petroleum and natural gas markets which have performed incredibly well with agriculture somewhere in the middle.”
And expectations are high for the S&P GSCI Commodity Index in 2023 after Goldman Sachs said in December the S&P Dow Jones Indices index will increase 43% next year, driven by oil, gas and metals.
Boal continued: “I spend most of my time talking to investors who aren’t just interested in commodities through an indexing lens, in fact commodities is often the last thing they think they are interested in.”
Boal added: “Anyone who has been taking a look at their pension portfolio this year will realise the old 60% equities and 40% bonds has really not done you a great service this year. For once, owning commodities has done what people have said it should traditionally do in a portfolio, which is offer inflation protection and diversification.”
The SGX Commodities Day was held in the Westin Hotel in London in November, and brought together some of the world’s top commodities traders, brokers and analysts, including SGX’s many commodities experts.
The presentations are being published in a series.
The first article covering the SGX Commodities Day in London is available here.
The second article in the series, featuring SGX's head of global sales Pol De Win, is available here.
The third article includes an overview of SGX Commodities by the group's director Tan Tee Yong and is available here.
The fourth piece in the series covers a panel discussion on the changing global demand for iron ore.
The fifth article considers how the SGX's Baltic Exchange is supporting the global freight industry.
The sixth article in the series looked at how the supply of battery metals is affecting the electric car industry.
The seventh article in the series covers a debate on the key trends in the carbon trading market.
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