Biofuels Draw Investors to Commodities

A financial products director says new traders are bridging the energy and agriculture markets.

Investor interest in commodities as a tool for portfolio diversifivation continues to grow, with the focus on agricultural sector increasing due to the expansion of biofuels, a managing director says.

"It's a very interesting sector. It's a blend of the agricultural factor with an energy market factors and that's a whole new type of environment for the agriculture sector," Daniel Raab, managing director of AIG Financial Products, told Dow Jones Newswires in an interview Tuesday.

Raab said this combination would "attract a lot of new type of transactions traders compare the price of gasoline and corn for example and track that differential and corn and natural gas. That dynamic will help to broaden out the use of both the energy and the agriculture markets."

Together with Dow Jones & Co., AIG runs a host of commodity indexes, with the nine-year old benchmark Dow Jones-AIG Commodity Index composed of 19 energy and agricultural futures contracts.

Currently there are no specific plans to launch any further agricultural-related contracts since DJ-AIG have sub-indexes on the main commodity index, he says, which cover variations on these two sectors. However, "as new products seem of interest to the market we definitely consider that," he says.

As of the end of second quarter, $38 billion is tracking the DJ-AIG group of commodity indexes, up from $30 billion this time a year ago. 

"We continue to see inflows. It's an asset class that's proven itself to investors" with a long-range time frame, he says. 

Source: Dow Jones newswires

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