A simple way to gain exposure to commodities and financials

01 November 2005

Macquarie Portfolio Management Limited is offering retail investors a capital protected alternative to equities that offers exposure to the exciting and difficult to access global commodities and financial futures markets.

Macquarie Comets Trust offers investors returns that are linked to global commodity and financial futures including energy, metals, agricultural products, currencies and bonds. This exposure is gained through a dynamic investment strategy linked to the Standard & Poor's Diversified Trends Indicator (S&P DTI).

The S&P DTI takes long positions in commodities and financial futures where prices are trending upward, and takes short positions where prices are trending downward.

Pia Cooke, a manager within the Equity Markets Group, said that unlike many other investments that offer exposure to commodities and financial futures, Comets uses an underlying investment strategy that takes both 'long' and 'short' positions.

"This means investors have the potential to profit from both rising and falling trends in commodity and financial asset markets," Ms Cooke said. "This is an important feature because although commodities have performed strongly over the past few years, with crude oil and metals in particular experiencing significant price increases, commodities like many other asset classes are subject to price fluctuations. Therefore, it is important to be able to profit from both these upward and downward trends in the market."

Comets offers excellent diversification due to the low or negative correlation that commodities bear to traditional asset classes, Ms Cooke said. "Adding Comets to your portfolio can increase diversification by adding an asset class that is negatively correlated to equities, thus reducing the portfolio's overall risk. And since commodities also offer a natural hedge against inflation, as commodity prices usually rise when inflation accelerates, Comets also offers investors a way of hedging away some of the inflation effects on their portfolios."

The commodities and financial positions in the S&P DTI are actively rebalanced every month to keep the volatility of returns low and to prevent any particular sector from becoming too overweight within the portfolio.

Volatility is a common measure of risk, Ms Cooke said. "The lower the volatility, generally the lower the risk. The average annual volatility of the S&P DTI since 1991 is approximately 5.67 per cent, which is extremely low when compared to the average volatilities of other commodity indices over the same period.

"The volatility of the S&P DTI is closer to that of US Treasury Notes than traditional commodity investments. As a comparison with other commodity indices, the Goldman Sachs Commodity Index (GSCI), one of the most widely known global commodity indices, had an average volatility over the same period of 20.20 per cent, significantly higher than that of the S&P DTI."

Comets enhances returns by using internal leverage through futures, Ms Cooke said. "Initially for each $1,000 invested in Comets, investors will receive $2,000 exposure to physical commodity and financial asset prices through futures contracts."

Comets aims to deliver both income and growth over a seven-and-a-half year period. Investors receive income distributions from Comets on a semi-annual basis. These distributions will be equal to 35 per cent of any cumulative increase in the value of the investment over the preceding six month period. The remaining 65 per cent of any increase will remain within the investment.

"For example, if I invest $10,000 in Comets and after six months my investment has increased to $11,000, then a coupon of $350 (less fees) will be paid and the value of the investment will then fall to approximately $10,650 (less fees)," Ms Cooke explained.

For Australian investors, finding a commodity product to invest in is not easy as the choice is limited. In the past the easiest way to profit from commodity price movements was to buy shares in resource, gold or oil companies. Through Comets investors can now easily gain direct access to price movements in commodities and financials in an easy, cost effective way.

Comets is an eligible investment for Self Managed Super Funds and may suit investors who:

  • are looking for potentially high investment returns with a corresponding risk profile
  • are looking to diversify their investment portfolio by adding commodities exposure to their portfolios
  • want to add an investment to their portfolios that has low or negative correlation to other traditional asset classes
  • are looking for a Capital Protected investment*
  • believe that commodity and financial prices will continue to trend over the medium term
  • have a self managed super fund and are looking for the potential to enhance returns and diversify a portion of their portfolio
  • can accept a holding period of seven and a half years in order to have the potential to benefit from Capital Protection

Comets has been reviewed by the research company Aegis Equities Research and has been awarded a 'Recommended' Rating.

Comets is open for a limited time only and close on the 15 December 2005.

For further information, please contact:

Pia Cooke
Equity Markets Group
Tel: (612) 8232 6974

* Capital protection for Comets applies only on the capital protection date (28 June 2013) and is subject to the terms and limitations of the Equity Markets Investments Agreement and in particular will not apply in the case of an Extraordinary Event - see the PDS for more details.

This general advice has been prepared by Macquarie Portfolio Management Limited ACN 092 552 611 ("RE"), the responsible entity of the Macquarie Comets Trust ("Trust"). Series 1 (January 2006) units ("Units") in the Trust issued by RE is offered under a Product Disclosure Statement ("PDS") available from www.macquarie.com.au/comets. Investors should obtain the PDS from RE relating to Units and consider it before making any decisions about whether to acquire, or continue to hold, Units. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This advice does not take into account your objectives, financial situation or needs. Before acting on this advice, you should consider the appropriateness of the advice having regard to your situation. Investments in the Trust are not deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 ("Macquarie") or any other Macquarie Group company and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. None of Macquarie, RE or any Macquarie Group company guarantees the performance of the Trust, the repayment of capital from the Trust or any particular rate of return. "Standard & Poor's®" and "S&P®", are trademarks of The McGraw-Hill Companies, Inc. "DTI" is a trademark of Alpha Technologies LLC. These marks have been licensed for use by Macquarie Portfolio Management Limited as responsible entity for the Trust. The Product(s) is/are not sponsored, endorsed, sold or promoted by Alpha Financial Technologies, LLC or Standard & Poor's and Alpha Financial Technologies, LLC and Standard & Poor's make no representation regarding the advisability of investing in the Trust. Macquarie or its associates, officers or employees may have interests in the financial products referred to in this information by acting in various roles and may buy or sell the financial products as principal or agent. They may effect transactions that are not consistent with this information. Macquarie or its associates may receive fees, brokerage or commissions for acting in these other capacities. This information is current as at 31 October 2005 and is subject to change without notice.

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