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Contribution Details
| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Commodity Futures and their Diversification Potential for a Swiss Investor - With an Application to the Glencore/Xstrata Merger |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 58 |
| Date | 2016 |
| Abstract Text | Commodity futures do not exhibit the same academic coverage as equities or bonds do. This master thesis aims to provide insights whether and to what extent commodity futures offer an attractive investment opportunity for a Swiss investor. Further on, the merger of Glencore and Xstrata is analysed under a portfolio optimization approach. The analysis of an equally weighted commodity futures index over the last 45 years revealed major differences in the performance of commodity futures and commodities traded spot. Whereas spot indices barely kept pace with inflation, commodity futures outperformed inflation by yearly 5.62% in Switzerland, and by 8.86% in the United States. A comparison of the commodity futures index with stocks and bonds showed stocks clearly outperformed commodity futures and bonds in Switzerland. Stocks exhibit an annualized Sharpe ratio of 0.16, whereas commodity futures reveal a Sharpe ratio of 0.05. From the perspective of a US investor, commodity futures exhibit a higher Sharp ratio than stocks (0.29 vs. 0.26). The reason for this substantial difference in performance between the Swiss and the US index can largely be attributed to exchange rate developments. Within a portfolio consisting of stocks, bonds, and commodity futures, the latter asset class can exhibit substantial weight if the portfolio is optimized regarding the ratio between expected return and standard deviation. The ability of commodity futures to boost the Sharpe ratio of such an optimized portfolio varies among the two countries. From the perspective of a Swiss investor, commodity futures showed to offer better inflation protection than stocks and bonds. Whereas stocks and bonds tend to correlate negatively with inflation, commodity futures showed a statistically significant positive correlation with inflation, increasing with the holding period. Despite the negative excess return of 29 out of 36 index constituents, the index exhibits a positive excess return. This puzzling outcome arises partially from low correlations between the index constituents and from the embedded trading strategy in monthly rebalancing to equal weights. The merger between Glencore and Xstrata in 2013 can partially be explained by a portfolio optimization approach. The merged portfolio meant portfolio improvement for Glencore, whereas Xstrata suffered in terms of optimality. This is consistent with the process of the merger and the paid premium to shareholders of Xstrata. The current financial difficulties of the merged company can partially be explained by commodity price evolutions in disadvantage of the consolidated portfolio. |
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