Commodities

A good year for commodities in 2010

Commodities again outperformed other asset classes last year, but equities also showed well

11 Jan - 14:53

It was a good year for equities in 2010, but an even better one for commodities, especially if you had taken a flier on palladium.

The silvery white metal rose in price by 96% over the 12 months, making it king of the hill among commodity plays, besting even strong performers such as cotton (+92%) and silver (+84%).

The commodities sector as a whole, as measured by the Reuters-Jefferies CRB index, rose 17% in 2010, a comedown from 2009’s 23% gain but better than you could expect from any of the major equity markets.

Natural gas (-21%) and cocoa (-7.7%) were the only commodities to fall back last year.

Most, if not all, commodities are quoted in US dollars and the fact that the greenback barely changed in value in 2010 against a basket of currencies, at least takes currency fluctuations out of the equation when determining the performance of commodities as an investment. For the record, the US dollar index edged 1.5% higher in 2010.

US treasuries, perceived as the most gilt-edged securities in the investment world, returned 5.5% in 2010 – a figure that includes interest payments – but this lagged behind the return on German government bonds, which generated 6.3%.

In Japan, where low interest rates have been in place for a long time, government bonds returned a miserly 2.4%, but at least that beat the negative return on Greek bonds (-20%), Irish bonds (-14%) and Portuguese bonds (-8%).

Globally, government bonds returned 4.9%, according to Bank of America Merrill Lynch's Global Broad Market Index.

In general, if fixed income was your thing in 2010 then corporate bonds were better bets, returning 7.1%, though even this return looks paltry in comparison with the 16.3% return they achieved in 2009.

The cult of equity investment retained a lot of adherents last year, however, and rightly so if you were long of the German, US, UK and Dutch markets, to name but a few.

Had you taken a positive view on the prospects of Greek, Spanish, Italian or Portuguese markets then turning a profit would have been a harder task.

The US market’s venerable Dow Jones index added 11% in 2010, while the broader based S&P 500 climbed 12.8%.

The technology stock laden NASDAQ Composite index showed a clean pair of heels to both, however, rising 16.9%.

Germany was Europe’s best performing major market, advancing 16.1%. The UK rose a creditable 9%.

Greece, not surprisingly, was in the cellar, after the market fell 35.6%; by comparison, the 17.4% fall suffered by Spain and the 13.2% decline endured by Italy do not seem so bad.

Leaving aside the small cap tiddlers, for UK stock pickers, power cord producer Volex (+298%), high tech tools provider Oxford Instruments (+232%) and speciality chemicals supplier Elementis (+169%) would all have repaid the price of purchasing an infallible crystal ball.

If the same crystal ball had recommended investing in care home operator Southern Cross (-86%), sportswear seller JJB Sports (-81%) or cancer drug developer Antisoma (-81%), a switch to reading tea leaves is recommended.