Broad-based commodity index-linked notes are once again finding favour in the US, following a quiet 2008.
According to SRP data, there have been at least 19 different notes linked to the performance of a broad-based commodity index or basket of commodities so far this year. Most of these have tenors of between one and two years, although Barclays Capital has launched several four- and five-year notes.
Two commodity-linked notes launched in mid-February by Norway's Eksportfinans have seen particuarly good sales. One of these (DJ AIG Commodity Total Return Index Linked Notes) was linked to the Dow Jones-AIG Commodity Index with a maturity in January 2010, while the second (S&P GSCI Total Return Linked Notes) was linked to the performance of the S&P Goldman Sachs Commodity Index and matures March 2010. The notes sold $50m and $32m, respectively.
"[February] was the best-performing month for commodities in seven months," said Chris Burton, co-lead portfolio manager of the $70m Credit Suisse Total Commodity Return Strategy portfolio. The commodity mutual fund invests across five commodity sectors and itself held three commodity-linked structured notes totaling nearly $10m as of 31 December 2008. Overall, commodity prices began tumbling in July 2008.
"The market is starting to look at commodities as an inflation hedge," Burton continued.
One factor that could derail the overall commodity market's further rise in 2009 would be the strengthening dollar, added co-lead portfolio manager Andrew Karsh.
Gold-linked structured notes as well as certificates of deposit have also been popular so far this year with 19 issues to date. Gold was the second best-performing commodity sector last year (coal was the leader) and one of only two sectors to see a positive performance in 2008, according to US Global Investors.
In related news, the Dow Jones-AIG Commodity Index will officially change its name in May 2009 to become the Dow Jones-UBS Commodity Index. As previously reported, UBS acquired the proprietary rights to the index in January from AIG, which has been selling off pieces of its non-core businesses.