Anti-gold cartel's UBS plans fund to short commodities

Section:

UBS to Launch New Product for Commodities

By Javier Blas
Financial Times, London
Monday, July 30, 2007

http://www.ft.com/cms/s/9c7d8216-3ed6-11dc-bfcf-0000779fd2ac.html

LONDON -- UBS will announce on Tuesday the launch of a commodities investment product that differs from the long-only, passive indices dominating the industry, providing non-specialist investors with sophisticated trading strategies that benefit from both rising and falling commodity prices.

The UBS Commodities Portfolio Algorithmic Strategy System aims to fill a gap in the market between the long-only passive indices, such as the popular S&P GSCI -- which has about $70 billion tracking it -- and services provided by commodities trading advisers and hedge funds.

Peter Ghavami, UBS head of commodities, said: "As familiarity with the commodities asset class grows, an increasing number of investors are recognizing the value of taking a more active approach."

The UBS Comm-PASS consists of a basket of strategies on 19 commodities future markets, with a 51 per cent exposure to energy.

The system, according to the bank, picks up on the momentum in the commodity markets and exploits it through automated long and short strategies.

"Through conversations with clients, the need for a radically different strategy for commodities investment than in the early years of the asset class was clear," Mr Ghavami added.

Traditional commodities vehicles bet only on higher prices and usually roll over their positions every month, selling the front-month contract and buying the following contract.

The strategy results in losses when prices fall from one month to the next or during a bear market.

Sharp losses that resulted from this type of investment in late 2005 and in 2006 have prompted some institutional investors to consider more complex commodity investment strategies.

ABP of the Netherlands, Europe's largest pension fund, suffered a loss of 18.5 per cent on its commodities investments in 2006, for example.

It said last week that it was considering reducing its exposure to energy commodities, such as crude oil or petrol, in its $6.5 billion commodities portfolio.

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