The commodity market is going through one of its worst phases and most commodity-based companies are struggling to keep their operations afloat. But this has not dented the performance of the funds investing in commodity stocks, market participants said.
Returns from commodity equity funds in the domestic market over a month range from 2.3 per cent to 8 per cent. Over three months, the returns are even higher for some funds such as Birla Sun Life Commodity Equities — Global Agri — over 10 per cent.
All commodities, excluding gold, are trading close to multi-year lows and the outlook for most remains weak.
Major global mining and metal companies that rode the wave of high prices for the last five years are now being compelled to sell their operations and lay off staff to ensure survival.
But mutual fund houses in India, which had launched commodity equity funds with much fanfare, when the commodity prices were at record levels in mid-2008, have managed to overcome some initial hiccups and are actually giving positive returns to the investors.
"At a time when gold and its ETFs (exchange-traded funds) are the only safe investment avenues, these funds have bucked the negative trend despite weak equity markets across India and the globe, due to steady portfolio churning by the fund houses," an official at a global commodity and equity brokerage house said.
Since the start of 2009, some commodities such as edible oils, crude oil and base metals have also stabilised after hitting technical support levels and this is being reflected in the performance of these funds.
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"Globally, commodities are performing better than equities, which is reflected in the returns," said Arvind Bansal, chief investment officer, multi-manager investments, ING Investment Management India.
| A SILVER LINING Returns from domestic commodity-based funds | ||
| Scheme Name | 1-month | 3-month |
| Birla Sun Life Commodity Equities-Global Agri | 7.82 | 10.52 |
| ING Optimix Global Commodities | 4.00 | -2.11 |
| Mirae Asset Global Commodity Stocks Fund | 231 | 6.84 |
| Note: Returns in per cent | ||
Bottomed out
"The global economic slowdown has hit most equity markets and has also resulted in greater interest in acquiring alternative assets like commodities, in which the danger of value slipping to zero is negligible," said an analyst with Religare Commodities.
Market players said that unlike equities, commodities tend to have strong demand-supply fundamentals, which tend to figure in the prices even when technically, all the markets are on a slide.
Crude oil declined over 78 per cent in five months from its record level of $147.27 a barrel but has traded mostly between $35 and $45 a barrel, supported by production cuts by most producers.
Similarly, with the prices falling drastically, most metal companies were forced to cut operation costs, cut supply and tighten their purse strings, which is being reflected in the steadying of most base metal prices.
"Equities across the globe are continuing on their southward journey due to a weakening economy, which has led investors shift to other asset classes such as gold and commodities," said a mutual fund distributor.
Gold-based funds
Another asset class is gold ETFs that have recorded the highest monthly average returns across categories. These funds offer returns corresponding to gold prices in the spot market.
Gold prices gained from global cues and the rupee's weakness against the dollar.
Last month, the international gold markets were firm as a weakening global economy triggered safe-haven investments.
Last month, average returns from five domestic gold ETFs stood at 9.18 per cent.
Quantum Gold posted an average return of 9.22 per cent. The returns of UTI Gold Exchange Traded Fund stood at 9.21 per cent, while that of Gold Benchmark Exchange Traded Fund were at 9.20 per cent, Kotak Gold Exchange Traded Fund at 9.17 per cent, and Reliance Gold Exchange Traded Fund at 9.07 per cent. Among gold feeder funds, DSP BlackRock World Gold Fund recorded 3.69 per cent return, while AIG World Gold Fund registered 2.05 per cent average return.