Nov 16 – Let’s assume that you are a somewhat contrarian investor and take the view that the recent slump to fresh lows in commodity prices, and the share prices of producers, is a sign that a turnaround is coming in 2016.
If you do take this view, is it better to buy the actual commodities or the shares of the companies that extract them?
Unfortunately there is no clear precedent from recent history to suggest that one will significantly outpace the other, but that doesn’t mean there’s no value in looking in what has happened in prior commodity routs.
BHP Billiton, the world’s largest diversified miner, reached its lowest since the 2008 financial crisis in Sydney trading on Nov. 11, hitting an intraday low of A$19.81 ($14.06) a share, before closing at A$20.23.
Converting to U.S. dollars, which is more relevant for internationals investors and because the commodities BHP sells are priced in the greenback, and BHP is still some way above the 2008 low at a Nov. 13 close of $14.42.
But the stock has lost almost 57 percent in U.S. dollar terms since the commodity rout got underway in the middle of last year, outstripping a drop in the S&P Goldman Sachs Commodity Index.
The index is a good proxy for BHP as it contains oil, which also represents about a third of BHP’s profits.
The S&P GSCI is down almost 50 percent since its 2014 peak of 672.54 on June 23, meaning that its losses, while still numbing for investors, haven’t been as bad as those suffered by BHP shareholders.
For the rest of this article, click here: http://www.reuters.com/article/2015/11/16/column-russell-commodities-companies-idUSL3N13B1FS20151116#Bq5IJbqA64DHrLRZ.97