With reference to the trail mail, I did my part of the analysis on W2W Sigma commodities PMS which has been recommended to you and I could draw the following inferences:
1.) 1 lac return per month on an investment of Rs 2000000 would roughly be an annualized return of 60%. But as per the statistics of this fund, this has not happened historically. Let us look at the arithmetic behind this. If you could look into the risk to reward ratio for Sigma it is 3.1, which signifies for every amount of risk taken, you would be rewarded by thrice the return. But if you look at the annualized volatility (which we consider as risk in investment parlance), it is 8.13%. Therefore the annualized returns would be therefore close to 25% (3.1 X 8.13).This is the return that their fact sheet quotes as well!! So 60%, I feel is a bit far fetched.
2.) But commodities have always done well when investors are looking for a safe haven away from the equity markets or the fancied currencies of the world. Commodities as any portfolio manager would tell you are only a transitory alternative if you are looking at staying invested without trading. With the dollar’s fortunes in the near future not being the best and euro taking a tumble, thanks to a weak bond market in Greece, commodities would still be lucrative investment for the next 3-6 months. But staying invested for 3 years as most PMS schemes would require you to, could lead to uncertain returns.
3.) The said PMS has yielded 89% absolute returns with an approx annualized return of close to 30% over the past 3 years. An unprecedented dip in equity fortunes in 2008 has contributed to these returns. As equity bounced back in 2009 any index based fund would have fetched you a minimum of 71% annualized returns. Of course these returns would not be replicated year on year but post budget the markets outlook is still very positive. Investors hence might return back to the tried and tested equities this year, thus rendering a runaway return of 60% annualized in commodities unlikely.
4.) But then again there are avenues in commodities market which can be lucratively exploited in the coming 12 months.
· On going food crisis and astronomical levels of food inflation, thanks to the supply shortage could render certain food products very attractive.
· Higher levels industrial production in China has enhanced demand for base metals and hence iron ore, steel and aluminum could be sound investment stories.
· Weaker currencies have put gold\ bullion into limelight and it has recently turned into a safe haven for all central banks. So gold should not lose its luster in the near future.
· Domestic duties on crude should ensure that it is a conspicuous entity and the price should hover around its current levels for some time now.