Quarterly Performance Update

3rd Quarter 2018

The commodity asset class, as represented by the Rogers International Commodity Index (“RICI®”), was down for the quarter -1.30%, leaving the RICI® up +4.36% for the year. This quarter, the RICI® outperformed the Benchmark Bloomberg Commodity Index (”BCOM”) for the 5th consecutive quarter in a row and the modest decline in the third quarter was preceded by 4 positive quarters in a row dating back to June 2017.

As indicated below, for the YTD, the RICI® remains well ahead of international stocks, US bonds and the BCOM while trailing US equities after their strong rally during the quarter.

 

Volatile Quarter and Successful Retest of the 2018 Low

The constant focus on the potential for trade wars and tariffs during the 3Q continued to weigh on many commodities particularly across both Industrial and Precious Metals as well as a portion of the Agriculture sector. The quarter began with a decline of -2.04% in the RICI® for the month of July as oil gave back some of its gains and Metals continued their correction which more than offset a positive move in Agriculture. August started weak again for all three sectors and the RICI® bottomed in mid-August, down close to -1% YTD. The subsequent recovery from the August lows left the RICI® down only -0.88% for the month. The rally continued into September with a +1.65% gain for the month. The recovery from the August lows was led by a strong rise in Energy as well as a rally in the Metals which included a positive September (+1.23%) for the sector, the first up month for Metals since May. Agriculture, on the other hand, remained weak until mid-September when it bottomed and began to recover into quarter end. The rally off the low in the RICI® on August 15th represented a successful retest of the low for the year that occurred in February 2018.

2018 – Non-Correlation in Action

As we examine the performance of stocks and bonds versus commodities over the first 3 quarters of 2018, the value of non-correlation is evident as the returns from commodities are showing up to benefit diversified portfolios:

First Quarter: The commodity asset class, as represented by the RICI®, was the stand out performer in the first quarter. The RICI® rose approximately +2% while the S&P 500, MSCI EAFE, and the Barclays US Agg Bond indices were all negative (RICI® Q1 2018 Commentary). Although the S&P 500 ended the quarter only slightly negative (-0.76%), there was major volatility and a few dramatic sell offs. Commodities added a great deal of diversification by performing relatively well during most of those periods of equity market stress. (Diversification Is Working (April 3, 2018)

Second Quarter: Both commodities and US Equites were positive with the RICI® up approximately +3.58%, slightly higher than the S&P 500 which was up +2.93% while bonds were relatively flat at -0.16%. At the end of June, the RICI® closed out as one of the best performing asset classes for the 2nd quarter, for the 2018 YTD, and the last 12 months (Mid Year Review).

Third Quarter: The RICI® was down a modest -1.30% which was the first decline since the June of 2017 quarter Importantly, from a portfolio point of view, it occurred when US equities had one of their best quarters in many years, +7.71%. US Bonds were flat and the MSCI EAFE was up a modest +1.35%.

We expect portfolios diversified with an exposure to commodities will continue to benefit as they have over the past year and have historically over many decades. The global macro environment for the asset class has continued to improve giving investors the opportunity to add while commodities are in the early stages of a multi-year reversion to the mean (Commodity Bull Market Ahead (Jan 9, 2018) and prices remain on average over 50% from their all-time highs (View Chart Here).

Sector Performance

 

 

 

 A Global Demand-Based Portfolio

The RICI® is a composite, US dollar-based, total return index methodology. It represents the value of a basket of commodities consumed in the global economy, ranging from Agricultural to Energy and Metal products. The Index’s weights attempt to balance consumption patterns worldwide (in developed and developing countries) and specific contract liquidity. The value of this basket is tracked via futures contracts on 38 different exchange-traded physical commodities, quoted in four different currencies, listed on nine exchanges in four countries.

(To access additional management commentaries & reports please visit our web site for Financial Advisors and Institutions by clicking here. For further insights visit our Commodity Curve Blog.)

The index returns shown above do not represent the results of actual trading of investible products, assets or securities. It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available only through investable instruments based on that index and there can be no assurance that investment products based on the index will provide returns that are similar to the actual index performance or provide positive investment returns. All the indices referred to in this presentation above are not investable products and their returns do not reflect the fees and charges inherent in investing in a vehicle designed to replicate a particular index. Any index performance provided is for illustrative purposes only. The time period selected represents the inception date of the Rogers International Commodity Index® and is intended to provide a historical long-term average. Data provided by Bloomberg LP, BarclayMAP, and RBC Wealth Management. Past performance is not indicative of future performance

Alan Konn

Partner & Managing Director of Price Asset Management