Gas, oil and raw materials: here’s how to invest. But beware of the risks

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Commodities are the big players in the financial markets in this early part of 2022. With bonds in free fall and stocks no longer as bright as they did last year, commodities are grinding gains. Since the beginning of the year, the Crb index – which summarizes about twenty raw materials – has risen by 33 percent. A movement that had already started in 2021 and that has registered a decisive acceleration after the outbreak of the war in Ukraine.

The Etc

Everything that is happening is increasingly attracting the attention of small savers. Investing in commodities is no longer a professional profession as it could have been 30 years ago. Today also in Piazza Affari are listed instruments, called Etc (Exchange traded commodity), which make it possible to replicate the main raw materials even with small amounts. Some of them earn more than 80% from the beginning of the year and this attracts the attention of small savers. Here lies the double-edged sword. The ease of access, the low costs and the small sums required encourage many investors to try the path of “exotic” investment, buying wheat, copper or palladium. But investing in raw materials is very complex and above all these instruments, for technical reasons, never faithfully replicate the trend of the underlying raw material. Then pay attention to what you buy. For example, the reference underlying used to invest in gas, which is so fashionable, is the American one and not the European one traded in the Netherlands.

I future

Since the beginning of the year, American natural gas has doubled, WTI oil has jumped by 35% while for gold the rise is more contained (+ 7.5%).

Trading on commodities on the main international markets is carried out through derivative contracts or i future. These are forward contracts for the delivery of a product (wheat, oil, etc.) at a certain deadline. Not all savers can or want to access these markets which require constant attention starting with maintaining margins on derivatives. The birth of the Etc tries to overcome this problem for those who do not have the time, desire and often skills to follow the future.

The problems of the Etc

All this, however, has a cost. Etc are usually built by hooking on to the former future quoted, when it approaches the deadline they move on to the next one. In this step, misalignments, even important ones, are often created between the price of the ETC and the prices of the raw material. These phenomena are observed over medium and long-term horizons: for example over a period of 3-5 years it is not surprising to see that an instrument that invests in a commodity such as oil or wheat is 20 or 30% misaligned with respect to the prices of the same commodity while for gold this problem does not occur, as it is a raw material that can be stored for a long time and therefore not subject to the effect of derivatives.

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