Structured product provider Dawnay Day Quantum has created a capital-protected bond linked to a basket of eight industrial metals and energy-related commodities for a four-year term.
Few people have direct exposure to commodities and are more likely to gain exposure through shares. However, Dawnay Day Quantum believes investors holding stocks such as BP and Shell will not fully benefit from the anticipated growth in the sector over the next few years.
Protected commodities accelerator will be linked an equally weighted portfolio of crude oil, heating oil, natural gas, aluminium, lead, copper, nickel and platinum.. There will be a full capital return at the end of the term regardless of the performance of the underlying investments and investors will also get 160 per cent of any growth in the commodities portfolio.
To calculate the returns, the Official London Metal Exchange closing cash price per metric tonne will be used in respect of aluminium, nickel, copper and lead. The official closing price per barrel of Brent crude oil, no 2 fuel oil and natural gas on the exchange of futures contracts for delivery in the first nearby month will also be used along with the afternoon fixing for platinum determined by the London Palladium and Platinum Market. Commodity prices are initially measured on November 19, 2004 and compared with an average over the last week before maturity.
Although the price of commodities such as oil have risen, when inflation is taken into account, the real price is historically low. Demand from China is strong but still has scope to increase, while population growth is also predicted and this could help push commodity prices higher.
However, commodity prices can be volatile in reaction to global events and high volumes of trading on the futures exchange, which could impact on this product's final returns.