Alexander Toth, commodities specialist and fund manager of Raiffeisen-Active-Commodities at Raiffeisen Capital Management speaks in the podcast bulls and bears ("Von Bullen und Bären") in Börsen-Express, July 10, 2022.

Record-high inflation rates

The increase in commodity prices is reflected in record-high inflation rates. Can we expect some easing here? Does the sector already find itself on the verge of the peak in a pork cycle? And, because there are always opportunities in all market situations, which commodities seem attractive for investors going forward?

Alexander Toth was interviewed on all these topics and more in a podcast on bulls and bears (“Von Bullen und Bären”). During this interview, DADAT CEO Ernst Huber cast a glance on the current flows of invested capital while delving into the issue of whether (Austrian) investors are moving some of their assets from Europe to the USA due to the proximity to and greater impact of the conflict in Ukraine. What can be said at any rate is that the lower prices are already being viewed as entry opportunities in some cases.

Lower prices as an entry opportunity

To understand the current price fluctuations in the commodity market, Alexander Toth looks at past developments and reminds us that crude oil, for instance, was even being traded at negative prices in March 2021. That was because at that time the oil storage facilities were too full to take up more product – there was a global fear of a great pandemic-related recession. This was followed by worldwide stimulus packages worth trillions... which were confronted in many commodity markets with a situation far removed from the infamous end of the pork cycle.

Because, in general, commodities experienced their last major price increase in the 2000s, resulting in massive investments in new capacities. The standard lead time for this was five to seven years until the start of production. The financial/Lehman crisis struck in 2008 and commodity prices dropped again, with almost no more investments being made. Then came the energy transition and the war in Ukraine. The latter has led not only to energy-related reductions in supply (crude oil and natural gas), because Russia is a global commodity supplier in many areas: Wheat and maize are examples of this, but nickel (used in batteries for electric vehicles and stainless steel), palladium (catalysers), and titanium (modern aeroplanes and military applications) also often originate in Russia. The former has led to a surge in demand to an almost unprecedented extent.

Electric cars require four times as much copper as conventional ones; and charging stations with connections are needed in addition – so copper is most definitely a commodity which may experience a megatrend, according to Mr Toth. There will likewise be no energy transition without aluminium, zinc, nickel, and silver. In his view, a shift is taking place regarding which commodities are in demand.

Alexander Toth manages the Raiffeisen-Active-Commodities fund without a set benchmark so that he can implement his ideas. For this reason, he can currently also hold a higher portion of precious metals than competitors who mirror the index. Agriculture and livestock are excluded from the investment universe.

According to its investment strategy, the Raiffeisen-Active-Commodities may mainly invest in investment funds. The investment strategy permits the fund to predominantly (relative to the associated risk) invest in derivatives. The fund exhibits elevated volatility, meaning that unit prices can move significantly higher or lower in short periods of time, and it is not possible to rule out loss of capital.