Retail investors lured by the prospect of fast-rising cotton prices should be wary of the associated volatility.
Many investors increasing their exposure to so called ‘soft’ commodities aren’t fully aware of the risks involved, according to Budge and Company’s Chris Wise.
“Our aggressive clients are getting increasingly interested in commodities, but not just the traditional ones like oil and gas. They see the price of wheat and cotton and the like going up, and want access in their portfolios,” he said.
Performance of fund over 1-yr
Source: FE Analytics
FE Analytics data shows ETFS Cotton up 96 per cent over the past year, but with an eye-watering volatility score of 41 per cent.
Wise warns that relying on soft commodities for growth is a risky strategy.
“There aren’t many funds in that space. Good ideas don’t necessarily mean good exposure and good growth,” he explained.
Of the funds with at least 80 per cent exposure to soft commodities, the $451.1m Allianz RCM Global Agricultural Trends fund is the best performing over the past year, with First State Global Resources taking second place.
Performance of funds over 1-yr
Source: FE Analytics
Launched in 2008 and 2003 respectively, the two funds have a relatively short track record and a high volatility.
