London, September 2010

Investors, rightly, continue to be interested in commodity investments. They are just as correct in being dissatisfied with the products that have been provided to them as ways to invest in the complex. For many commodities, buying exposure on a long physical basis is not feasible. As a result, reliance on forwards, futures, and options will continue to be necessary for investors keen to participate in these markets, both long and short. However, the risks of trying to mechanically invest in commodities through leveraged positions, structured notes and futures has been empirically demonstrated to be lacking for investors. A move back toward a more fundamental, actively managed portfolio – with hedges in place – is emerging as the next best approach to investing in commodities.

Jeffrey M. Christian

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