In this issue of the GCARD, we have the pleasure of interviewing Jodie Gunzberg, CFA. Gunzberg is the Managing Director and Chief Institutional Investment Strategist for Morgan Stanley Wealth Management. Previously Gunzberg was the Managing Director and Head of U.S. Equities at S&P Dow Jones Indices (S&P DJI). She had originally joined S&P DJI as the Director of Commodities product management. In addition to her impressive track record of professional achievement, Gunzberg has retained a strong passion for education, whether it concerns early-childhood tutoring, university-level mentoring, or professional development for young finance professionals. In this interview, we ask Gunzberg about advice regarding career development, and we also explore both commodity- and education-based themes with her as well.
Commodity Portfolio Management: Strategy Structuring Considerations
By Vito Turitto, Lead Quantitative Analyst, S&P Global Platts, U.K.
This article expands on research into commodity portfolio management that was published in the Winter 2019 edition of the Global Commodities Applied Research Digest. Commodity markets are often used to diversify portfolio risk and as a hedge against inflation but, in order to maximize returns and hedging effectiveness, it is necessary to develop an approach that examines each commodity market separately. Accordingly, this article analyzes individual commodity returns and provides guidance on how extreme returns can impact commodity portfolio strategies.
Volatility in Dairy Markets: Towards a Dynamic Value at Risk Model for Dairy Commodity Trading
By Vincent Almering, Group Treasurer, Interfood Holding B.V., The Netherlands; Herbert Rijken, Ph.D., Full Professor in Corporate Finance, Vrije Universiteit Amsterdam, The Netherlands; and Frans Cleton, Senior Manager, KPMG Advisory, The Netherlands and Program Manager and Instructor, Postgraduate Program, Treasury and Corporate Finance, Vrije Universiteit Amsterdam, The Netherlands
Commodity prices are subject to extreme price volatility and are a prominent source of risk for treasurers. The current geopolitical uncertainty is one of the main causes behind the recent uptick in volatility in many markets, complicating the ability of a treasurer to manage risk. Inevitably, the dairy sector is also affected by these developments and is on the lookout for more advanced market risk management tools. One promising tool is volatility modeling. This paper focuses on how volatility modeling can benefit commodity traders by dynamically managing price risk in the European Union (EU) dairy market with time series models.
The Impact of the Energy Transition on Wholesale Power Pricing and Market Risk
By Nazim Osmancik, Energy Risk Management Expert
Low carbon power generation is gaining market share in many key markets around the world. Underpinned by displacing traditional thermal power generation with renewables like wind and solar, this trend introduces supply intermittency that drives new pricing patterns and changes the profile of risk. The scale and complexity of the intermittency challenge will increase as the share of renewable generation rises in energy systems. Understanding these challenges are key to investment, strategy, and policy decisions. This article explores these trends using evidence from the U.K. power market, followed by a discussion on future implications and recommendations.
Dynamic Commodity Valuations
By Nick Vasserman, Founder and Chief Investment Officer, Integrated Portfolio Intelligence, LLC
Historically speaking, commodities balance sheet entries were not observable in a timely fashion. Lagged data is typically published by government agencies and often substantially revised in later releases. This lack of uniformity severely hinders the efforts to gauge international commodities balances and determine individual commodity valuations. Further complicating this effort are the different accounting standards and principles adopted by different agencies and analysts.
This paper proposes that in today’s information age, it is possible and necessary to construct a globally consistent investment framework that integrates all available fundamental data and technology into dynamic stocks-to-use ratios to assess commodity valuations in near real-time.
A Review of Global Silver Supply Trends
By Thomas Brady, Ph.D., Executive Director, J.P. Morgan Center for Commodities, University of Colorado Denver Business School and Managing Director and Editor, Commodities Report, Capitalight Research, Canada; and Chantelle Schieven, Managing Director and Research Head, Capitalight Research, Canada
This article provides a broad sweep review of both the long-term trends in global silver mining supply and in global silver supply concentration. The authors anticipate mine supply growth to remain very challenged. Lower processed grades, which in turn result from longer-term downward trends in exploration success, will pressure operating costs as well as production levels. Over the near term, COVID-19 restrictions will also potentially impact production levels going forward. The authors also anticipate industry concentration levels to marginally increase in both silver and gold mine supply. As a consequence of the continuing mining challenges of lower processing grades and limited exploration success, the authors expect that companies will be forced to look towards mergers-and-acquisitions to sustain production profiles.
Gold Price Relationships Before and After the Global Financial Crisis
By Daniel Murray, Ph.D., Deputy Chief Investment Officer and Global Head of Research, EFG Asset Management, U.K. and Member of the GCARD’s Editorial Advisory Board
There are several commonly held beliefs in the investment community regarding the relationship between gold and other variables: namely, the U.S. dollar, the 10-year Treasury yield, the oil price, inflation and market volatility or risk. At the same time, we know that central banks have adopted widespread large-scale asset purchase programs during and since the period that began with the Global Financial Crisis (GFC) in 2008/09, over which time monetary authority balance sheets expanded at a dramatic rate. This paper explores the nature of the relationships between gold and the other variables before and after the GFC in this context. The paper shows that the relationships have indeed changed since the GFC in terms of both significance and direction of causality.
How Super is the Commodity Cycle?
By Daniel Jerrett, Ph.D., Chief Investment Officer, Stategy Capital LP and Member of the JPMCC’s Advisory Council
The reemergence of the commodity super-cycle discussion has important implications for the global economy and capital markets. Mineral producers, policymakers, and investment managers are all trying to better understand commodity prices to make more informed, long-term decisions. The author proposes a statistical methodology that could help support this decision-making process and provide a framework to discuss super cycles in commodities as well as other macroeconomic and financial questions.
ESG Comes to Town
By Kartik Ghia, Ph.D., Co-Head of the Systematic Strategies Team, Index and ESG Research Group, Bloomberg LP and Member of both the JPMCC’s Advisory Council and the GCARD’s Editorial Advisory Board; A.J. Lindeman, Ph.D., Head of the Index and ESG Research Group, Bloomberg LP; and Michael Zhang, CFA, Quantitative Analyst, Index and ESG Research Group, Bloomberg LP
In recent years, environmental, social and governance (ESG) themes have rapidly risen to prominence within equities and fixed income. In commodities however, this discussion is still in its infancy. In this article, the authors (a) highlight the unique interpretation issues for commodities investors with regard to ESG investing; (b) provide a summary of the factors that need to be considered when estimating GHG emissions for metals production; (c) outline a rules-based approach for estimating GHG emissions per metal; and (d) construct sample portfolios incorporating GHG-based scores.
Dry Bulk Shipping and the Evolution of Maritime Transport Costs, 1850-2020
Research by David S. Jacks, Ph.D., J.Y. Pillay Professor of Social Sciences, Yale-NUS College, Singapore, Professor, Simon Fraser University, Canada and Member of the GCARD’s Editorial Advisory Board; and Martin Stuermer, Ph.D., Senior Research Economist, Federal Reserve Bank of Dallas
This paper evaluates the dynamic effects of fuel price shocks, shipping demand shocks, and shipping supply shocks on real maritime transport costs in the long run. The authors first analyze a new and large dataset on dry bulk freight rates for the period from 1850 to 2020, finding that they followed a downward but undulating path with a cumulative decline of 79%. Next, the authors turn to understanding the drivers of booms and busts in the dry bulk shipping industry around this trend, finding that shipping demand shocks strongly dominate all others as drivers of real dry bulk freight rates. Furthermore, while shipping demand shocks have increased in importance over time, shipping supply shocks in particular have become less relevant.