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The Commodity After the Storm
February 27th, 2007 has shaken up the investing public, and will likely remain in their memories for some time - although, since the wreckage of the day's events is still being sifted through, how long a memory is yet to be determined. It could be a watershed event for the recent bull market, and a harbinger of a bear market in which global stocks, bonds and credit investments see a new, lower, level. It could also be simply a pause that shows how resilient the markets have become of late.
As the table below demonstrates, the basket of Soft Commodities that the ONE Financial CASH+ Breakfast Notes are linked to (80% Goldman Sachs Agricultural Excess Return Index and 20% Goldman Sachs Livestock Excess Return Index) would have weathered the storm relatively well.
| Investment | Feb 27th Performance |
| ONE Financial Soft Commodities Basket | -0.63% |
| Dow Jones Industrial Average | -3.29% |
| S&P/TSX | -2.72% |
| NASDAQ | -3.86% |
| iShares MSCI Emerging Markets | -7.14% |
| Shanghai Composite Index | -8.80% |
The ONE Financial Soft Commodities Basket outperformed (or, didn't do as poorly as) the major U.S. indices, the emerging markets iShares and the Shanghai Composite (where all of the panic began). The reason? The Basket has extremely low correlations to the equity markets. When stock markets fall, people still need to eat. Trends that affect the grain and livestock markets (demand for corn to process into ethanol, droughts limiting wheat production, and fewer head of cattle heading to market, to name a few) are different from those that affect stock and bond prices.
Correlation of Soft Commodity Basket and other asset classes
| S&P/TSX 60 | 0.06 |
| S&P 500 | 0.00 |
| Scotia Domestic Bond Universe - Overall | -0.17 |
Based on data from Jan. 1, 1993 to Sept. 15, 2006
Consider the power of non-correlated soft commodities for your clients' portfolios. The ONE Financial CASH+ Breakfast Notes provide exposure to soft commodities, including livestock, corn, soy, cotton and numerous others. And they do so with the security of 100% principal protection and the benefit of a tax efficient, variable quarterly income stream.
Source: Bloomberg.
