Commodities and Strategies October 2016 October 2016 | For professional investors or advisors only Christopher Wyke | Product Director
Commodities and
Strategies October 2016
October 2016 | For professional investors or advisors only
Christopher Wyke | Product Director
Source: Schroders – September 2016
Why invest in Commodities?
1
As an inflation risk hedge
As a geopolitical risk hedge
As a portfolio diversifier
Commodities are cheap
Commodities are underowned
Commodity markets are inefficient
Why invest in Commodities? As an inflation hedge
Source Thomson DataStream; Schroders – 31 December 2015
2
Monetary Madness “The Great
Inflation II”
?
0
10
20
30
40
50
60
70
80
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
World Money Supply
M2 ($trn)
Volcker
claws it
back
Dollar
devalued
again
Fed acts
Dollar rises
Dollar
falls
“Pure” Fiat
Money Begins
Bernanke
“Helicopter”
speech
Dollar rose again
“The Great
Inflation”
Dollar declining?
Why invest in Commodities? The Great Inflation I: A Reminder
3
Shown for illustrative purposes only.
7,70%
10,60%
-13,50%
12,50%
7,30%
4,60% 5,30% 6,30%
21,30%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Stocks Bonds Commodities Stocks Bonds Commodities Stocks Bonds Commodities
Why invest in Commodities? Diversified source of return in inflationary environments
4
Source: US CPI 1976 – 2015: Annual Returns; S&P; Barclays; CRB – Bloomberg
Falling inflation Stable inflation Rising inflation
5
Source: Hedgeye – September 2016
Be careful what you wish for…
Why invest in Commodities? As a geopolitical hedge
6
Source: Google images
Why invest in Commodities?
7
Source: Bloomberg; Schroders – 30 September 2016
0
200
400
600
800
1.000
1.200
1.400
1.600
set/85 set/87 set/89 set/91 set/93 set/95 set/97 set/99 set/01 set/03 set/05 set/07 set/09 set/11 set/13 set/15
Commodities are uncorrelated
S&P GSCI TR Index relative to S&P 500 (rebased to 100)
S&P 500 Index
S&P GSCI TR Index
0
5
10
15
20
25
30
35
40
Nov-05 Nov-07 Nov-09 Nov-11 Nov-13 Nov-15
Source: Schroders; Bloomberg – 30 September 2016
Why invest in Commodities? Commodities are cheap
8
0
10
20
30
40
50
60
Nov-05 Nov-07 Nov-09 Nov-11 Nov-13 Nov-15
0
2
4
6
8
10
12
14
16
Nov-05 Nov-07 Nov-09 Nov-11 Nov-13 Nov-15
Natural Gas
Silver
Rubber
Sugar
0
100
200
300
400
500
600
Nov-05 Nov-07 Nov-09 Nov-11 Nov-13 Nov-15
-82%
-79%
-72% -72%
s/b
tu
¥/K
ilo
$/o
z
Cts
/lbs
Why invest in Commodities now?
9
Source: Merrill Lynch Survey; JP Morgan Flow & Liquidity –September 2016
Sentiment: Commodities are still unloved
Monthly net over/underweight in Commodities
%
Gold equities analyst buy recommendations
15%
25%
35%
45%
55%
65%
75%
85%
0
100
200
300
400
500
600
700
2000 2002 2004 2006 2008 2010 2012 2014 2016
HUI Index (LHS)
Buy % (RHS)
Index Total Number Buys / Total Recommendations
Schroders’ Commodity Funds Commodity fund ‘family’ 2016
10
Source: Schroders, October 2016
* converted from SAS Gold & Precious Metals Fund 30.06.16
Launch date Vehicles Performance
Objective Assets Style
2005 Part II SICAV, US LP Index plus Mainly futures Long only,
unconstrained
2006 Part II SICAV Index plus Mainly futures Long only,
unconstrained
2006 UCITS SICAV Index plus Equities
Long only,
unconstrained,
high beta
2011/16 UCITS SICAV Index plus Equities Long only,
unconstrained
2013 UCITS SICAV Real Return
Cash, Bonds,
Equities,
Commodities
Long only, diversified
2016 Part II SICAV Total Return Futures, Equities,
Options
Long / short,
leverage
Fund
Commodity
Agriculture
Global Energy
Global Gold*
Wealth
Preservation
Commodity
Total Return
Schroders Commodity Fund
Commitment
The Schroders commodities team has been managing long-only, actively managed commodity futures portfolios
since October 2005 and now manages over $2 billion in commodities for clients around the world. Schroders
remains highly committed to this asset class and has significantly increased the size and experience of its
commodities team in the last 2 years.
Philosophy
Schroders believes that over a market cycle, an actively-managed commodities portfolio will produce higher returns
at a lower level of volatility than a passively managed portfolio
Approach
Active management
Index unconstrained
Long only, no leverage
Performance Objective
Aims to outperform simple average of the four major commodity indices* with a lower level of volatility
Source: Schroders – September 2016 *The 4 indices are: S&P GSCI TR, TR/J CRB, BCOM TR, RICI TR
Fundamental research driven
Equal emphasis on agriculture, energy and metals
Medium term time horizon
11
Calendar Years Trailing Periods
2011 2012 2013 2014 2015 2016
YTD 1 Yr 2 Yr 3 Yr 5 Yr
Since
inception
31.10.05
Schroders Commodities Composite* -6.36 0.34 -8.21 -23.58 -27.27 +14.44 0.47 -18.24 -14.49 -10.4 -0.84
4-Index Benchmark^ -7.46 -0.51 -5.06 -22.74 -26.76 +7.41 -5.33 -19.91 -15.62 -9.79 -5.22
Outperformance vs. Benchmark 1.10 0.85 -3.15 -0.84 -0.51 +7.03 5.80 1.67 1.13 -0.25 4.38
-10
-8
-6
-4
-2
0
2
15 17 19 21 23 25
Schroders Commodities Strategy Performance
*Composite Gross Returns **Annualised Standard Deviation of monthly returns ^Benchmark: simple average of BCOM, Rogers ICI, S&P GSCI, TR/J CRB
Source: Schroders – 30 September 2016
Performance of Commodities Strategy vs. Indices
Cumulative total return % Annualized rate of return %
-80
-60
-40
-20
0
20
40
60
80
100
120
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 **Volatility %
Schroders* Rogers ICI
BCOM TR/J CRB
S&P GSCI
Schroders*
Rogers ICI
BCOM TR/J CRB
Average
S&P GSCI Average
Bloomberg Commodity TR Index -13.32 -1.05 -9.52 -17.01 -24.66 +8.87 -2.58 -15.08 -12.34 -9.37 -4.87
Outperformance vs. BCOMTR Index 6.96 1.39 1.31 -6.57 -2.61 +5.57 3.05 -3.15 -2.15 -0.67 4.04
12
75
80
85
90
95
100
105
110
out/15 nov/15 dez/15 jan/16 fev/16 mar/16 abr/16 mai/16 jun/16 jul/16 ago/16 set/16 out/16
Recent investment performance
13
Schroder AS^ Commodity
I Gross
Average*
Source: Bloomberg – 30 September 2016
1 Year Total Returns *The 4 indices are: S&P GSCI TR, TR/J CRB, BCOM TR, RICI TR ^Schroder Alternative Solutions is referred to as Schroder AS
1,17%
24,56%
17,53%
14,65%
-1,95%
18,65%
0,01%
7,36%
-5%
5%
15%
25%
Schroder ISF** GlobalGold
SISF Global Energy SISF WealthPreservation
Schroder AS CommodityFund
SAS Agriculture Fund
Schroders’ Commodity Funds 2016 Performance to 30th September
14
Source: Schroders; Bloomberg – 30 September 2016, gross returns **Schroder International Selection Fund is referred to as Schroder ISF throughout this presentation.
*Schroder AS Gold and Precious Metals Fund up to 28 June 2016 – now the SISF Global Gold as of 29 June 2016
19/10/
2016
18:05:
14
Benchmark
Fund
*
FTSE Gold Mines MSCI World Energy
Sector Index Eurozone CPI 4-Index Benchmark Rogers Agriculture TR
Index
Oats
Lean H
ogs
Fe
ed
er
Ca
ttle
Rough R
ice
Kansas W
heat
Wheat
Liv
e C
attle
Fre
nch W
heat
Cocoa
Corn
Gasolin
e
Natu
ral G
as
Canola
WT
I
UK
Nat
Gas
Copper
Soybean O
il
Rapeseed
Cotton
Alu
min
ium
Soybeans
Coffee
Soybean M
eal
Pla
tinum
Palm
Oil
Le
ad
Ru
bb
er
Gas O
il
Nic
kel
Bre
nt
Heating O
il
Gold
Lu
mb
er
Palla
diu
m
Silv
er
Tin
Ora
nge J
uic
e
Suga
r
Zin
c
Coal
Iron O
re
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
2016 Market Review Commodity Returns (YTD to 30th September 2016)
15
Source: Bloomberg – 30 September 2016
Total Returns
% Total Return
Average Commodity Index Return
Current Investment Strategy Summary
16
Source: Schroders – September 2016
► Commodities made a major turn early in 2016
– 5-year bear market is over
– supply-demand dynamics in high gear
– unwarranted extreme monetary policy supportive
► Energy:
– Oil bottomed in February, now consolidating near $50, trend is higher
– US natural gas heading for a shortage; price surge to continue
► Metals: gold, silver favoured but base metals can also rally
► Agriculture:
– We like coffee, sugar, rubber, lumber
– Crop losses in South America in Q2 removed the oversupply in corn and
soybeans. Prices are bottoming.
Schroder AS Commodity Fund As at 30 September 2016
4,6
3,1
-2,8
-4,9
Cash
Agriculture
Metals
Energy
Sector weights vs. benchmark^
Energy
38.8%
Metals
20.4%
Agriculture
36.3%
Cash
4.6%
Agriculture
36.3% Energy
38.8%
Metals
20.4%
17
Futures Equities ETF’s* Total Exposure Benchmark† Difference
Cash
4.6%
Crude Oil 14.0 2.2 16.2 27.8 -11.6
Gas Oil 1.7 1.7 1.6 0.1
Gasoline 4.4 4.4 4.2 0.2
Heating Oil 3.4 3.4 4.1 -0.6
UK Natural Gas 1.6 1.6 1.6
US Natural Gas 9.3 2.1 11.4 5.9 5.5
Aluminium 1.1 1.1 4.4 -3.3
Copper 4.2 4.2 5.1 -0.9
Gold 3.4 0.8 1.7 5.9 6.7 -0.8
Lead 0.7 0.7 0.7
Nickel 2.4 2.4 1.3 1.1
Palladium 0.1 -0.1
Platinum 1.0 0.1 1.1 0.5 0.7
Silver 3.0 0.3 3.3 2.6 0.7
Tin 0.3 -0.3
Zinc 1.6 1.6 1.6
Cocoa 1.6 -1.6
Coffee (Robusta) 2.4 2.4 0.5 1.9
Coffee (Arabica) 4.3 4.3 2.1 2.1
Corn 4.7 4.7 5.3 -0.6
Cotton 5.6 5.6 3.0 2.5
Feeder Cattle 0.3 -0.3
Lean Hogs 0.3 0.3 1.2 -0.9
Live Cattle 3.6 3.6 3.5 0.1
Lumber 0.2 0.4 0.7 0.3 0.4
Oats 0.1 -0.1
Orange Juice 0.4 -0.4
Rapeseed 0.3 -0.3
Rough Rice 0.2 -0.2
Rubber 1.8 1.8 0.3 1.5
Soybean Meal 0.9 -0.9
Soybean Oil 1.5 1.5 1.2 0.3
Soybeans 3.0 3.0 4.6 -1.6
Sugar (Raw) 4.5 4.5 3.5 1.0
Sugar (Refined) 1.0 1.0 0.3 0.7
Wheat (US) 2.1 2.1 3.5 -1.5
Wheat (French) 1.0 1.0 0.3 0.7
Cash 4.6
TOTAL 87.8 5.9 1.7 100.0 100.0
Source: Schroders *Includes OTC Commodity Swaps and Physically Backed ETFs †Shown for comparison purposes only ^S&P GSCI TR; TR/J CRB; BCOM TR; RICI TR
Global: Fundamentals Strong Dollar has been a big negative for Commodities – now reversing?
18
Source: Bloomberg; Schroders – 30 September 2016
80
85
90
95
100
105
110
115
-
100
200
300
400
500
600
700
dez/99 dez/01 dez/03 dez/05 dez/07 dez/09 dez/11 dez/13 dez/15
US$ TWI (RHS)
Gold
Oil
ᴖ ᴖ ᴖ
S S H
ᴖ ᴖ ᴖ
?
?
?
ᴖ ᴖ ᴖ
?
Energy Fundamentals: Oil Market tightening rapidly in H2 2016
IEA 2016
mnbd
Δ
Global demand 96.1 1.4
OECD demand 46.3 0.1
Non-OECD demand 49.7 1.2
Non-OPEC supply 56.8 -0.8
Non-OPEC ex-NA 37.5 -0.3
North America 19.5 -0.5
OPEC NGL 6.9 0.2
Non-OPEC + NGL 63.7 -0.6
OPEC to balance 32.4 +2.0
OPEC 2016
mnbd
Δ
Global demand 94.2 1.2
OECD demand 46.5 0.2
Non-OECD demand 47.7 1.0
Non-OPEC supply 56.4 -0.7
Non-OPEC ex-NA 35.9 -0.2
North America 20.5 -0.5
OPEC NGL 6.3 0.2
Non-OPEC + NGL 62.7 -0.5
OPEC to balance 31.5 +1.8
US DoE 2016
mnbd
Δ
Global demand 95.3 1.5
OECD demand 46.4 0.2
Non-OECD demand 48.9 1.3
Non-OPEC supply 57.0 -0.6
Non-OPEC ex-NA 35.4 0.0
North America 21.6 -0.6
OPEC NGL 6.8 0.3
Non-OPEC + NGL 63.8 -0.3
OPEC to balance 31.5 +1.8
Energy Aspect 2016
mnbd
Δ
Global demand 95.9 1.3
OECD demand 46.2 0.0
Non-OECD demand 49.7 1.3
Non-OPEC supply 56.9 -0.7
Non-OPEC ex-NA 36.8 0.0
North America 20.1 -0.7
OPEC NGL 6.8 0.1
Non-OPEC + NGL 63.7 -0.6
OPEC to balance 32.2 +1.9
Balances much healthier in 2016, progressive tightening through H2
Iran and Libya remain principal wildcards for 2016
19
Source: Schroders, as at 04 July 2016. Subject to rounding errors
Energy Fundamentals: Oil Market tightening continues into 2017
US DoE 2017
mnbd
Δ
Global demand 96.7 1.5
OECD demand 46.5 0.1
Non-OECD demand 50.3 1.4
Non-OPEC supply 56.8 -0.2
Non-OPEC ex-NA 35.1 -0.3
North America 21.7 0.1
OPEC NGL 7.2 0.3
Non-OPEC + NGL 64.0 0.1
OPEC to balance 32.7 +1.4
IEA 2017
mnbd
Δ
Global demand 97.4 1.3
OECD demand 46.4 0.1
Non-OECD demand 51.0 1.3
Non-OPEC supply 57.0 0.2
Non-OPEC ex-NA 37.5 0.1
North America 19.5 0.1
OPEC NGL 6.9 0.0
Non-OPEC + NGL 63.9 0.2
OPEC to balance 31.4 +1.1
Energy Aspect 2017
mnbd
Δ
Global demand 96.9 1.1
OECD demand 45.9 -0.3
Non-OECD demand 51.0 1.3
Non-OPEC supply 56.3 -0.6
Non-OPEC ex-NA 36.0 -0.8
North America 20.3 0.2
OPEC NGL 6.9 0.1
Non-OPEC + NGL 63.2 -0.5
OPEC to balance 33.7 +1.6
Tightening continues into 2017 on falling non-OPEC supply, CONSENSUS TOO HIGH
2017 demand is main wildcard at this stage
20
Source: Schroders, as at 04 July 2016. Subject to rounding errors
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
jan-2
013
fev-2
013
mar-
2013
mai-2013
jun-2
013
ago-2
013
set-
20
13
out-
2013
dez-2
013
jan-2
014
fev-2
014
abr-
20
14
mai-2014
jul-20
14
ago-2
014
set-
20
14
nov-2
014
dez-2
014
jan-2
015
mar-
2015
abr-
20
15
jun-2
015
jul-20
15
ago-2
015
out-
2015
nov-2
015
jan-2
016
fev-2
016
mar-
2016
mai-2016
jun-2
016
USA gasoline demand 4 week MA % US Highways Vehicle Miles Travelled
Energy Fundamentals: Oil USA Gasoline demand – what has happened recently?
21
Source: Schroders, EIA, US Department of Transport – July 2016
2.800.000
2.825.000
2.850.000
2.875.000
2.900.000
2.925.000
2.950.000
2.975.000
3.000.000
3.025.000
3.050.000
3.075.000
3.100.000
3.125.000
3.150.000
3.175.000
3.200.000
Jan-0
6Apr-
06
Jul-06
Oct
-06
Jan-0
7Apr-
07
Jul-07
Oct
-07
Jan-0
8Apr-
08
Jul-08
Oct
-08
Jan-0
9Apr-
09
Jul-09
Oct
-09
Jan-1
0Apr-
10
Jul-10
Oct
-10
Jan-1
1Apr-
11
Jul-11
Oct
-11
Jan-1
2Apr-
12
Jul-12
Oct
-12
Jan-1
3Apr-
13
Jul-13
Oct
-13
Jan-1
4Apr-
14
Jul-14
Oct
-14
Jan-1
5Apr-
15
Jul-15
Oct
-15
Jan-1
6Apr-
16
(Rolling 12-month average, million miles)
3.000
4.000
5.000
6.000
7.000
8.000
9.000
10.000
11.000
1.000
1.500
2.000
2.500
3.000
3.500
4.000
4.500
5.000
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
Gasoline Consumption Diesel Consumption
Kerosene, Fuel Oil & Other Domestic crude production
Net Imports (RHS)
China oil demand by product (kbls/day) China passenger car sales (Monthly, Bloomberg)
Energy Fundamentals: Oil China demand driven by gasoline consumption
22
Source: Energy Aspects, Sinopec, Bloomberg, Schroders July 2016
Based on a run rate of 20m new passenger car sales per year, this translates into around 280k/day of incremental gasoline demand
China’s gasoline demand was up 11% y-o-y for the full year 2015. Oil demand was up around 3.5% y-o-y for the full year 2015
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
1800000
2000000
2200000
2400000
01
/01/2
006
01
/07/2
006
01
/01/2
007
01
/07/2
007
01
/01/2
008
01
/07/2
008
01
/01/2
009
01
/07/2
009
01
/01/2
010
01
/07/2
010
01
/01/2
011
01
/07/2
011
01
/01/2
012
01
/07/2
012
01
/01/2
013
01
/07/2
013
01
/01/2
014
01
/07/2
014
01
/01/2
015
01
/07/2
015
01
/01/2
016
All Cars SUV Pure Electric Hybrids
Energy Fundamentals: Oil
23
Source: Indian Ministry of Petroleum & Natural Gas – 31 March 2016
India is the new China
6.000
8.000
10.000
12.000
14.000
16.000
18.000
200
1
200
2
200
2
200
3
200
4
200
5
200
5
200
6
200
7
200
8
200
8
200
9
201
0
201
1
201
1
201
2
201
3
201
4
201
4
201
5
201
6
1000 m
etr
ic t
onnes
-10%
-5%
0%
5%
10%
15%
20%
200
3
200
3
200
4
200
4
200
5
200
6
200
6
200
7
200
7
200
8
200
8
200
9
201
0
201
0
201
1
201
1
201
2
201
3
201
3
201
4
201
4
201
5
201
5
6m ann.
12m ann.
India Oil demand is soaring India total petroleum products consumption –
annualised rates of change
Baker Hughes International Rig-Count
Energy Fundamentals: Oil Supply: the cuts in international drilling activity have started to accelerate
The European rig count has fallen 35% in the last 15 months and is expected to contract by a further 40% before the end of 2016
The South American rig count is down 50% from its peak at the end of 2013. Both Petrobras and Pemex are reducing rig commitments further for 2016/2017
The Africa rig count down 36% since the end of 2014. The major oil companies are still trying to break contracts for future drilling commitments
The Middle East rig count is only down 8% from its peak. This is consistent with the key producers intentions of maintaining production at current levels
24
Source: Baker Hughes, Schroders, July 2016
Estimated 2015
Oil Production
(MBD)
Current
Rig Count
Recent
Peak
%
Change
Angola 1.76 9 19 -53%
Argentina 0.63 71 113 -37%
Brazil 2.53 15 50 -70%
China 4.33 31 40 -23%
Colombia 1.01 5 48 -90%
Egypt 0.70 28 56 -50%
Indonesia 0.69 19 40 -53%
Iraq 3.99 43 96 -55%
Malaysia 0.71 6 16 -63%
Mexico 2.60 22 98 -78%
Nigeria 1.80 6 19 -68%
UK 0.95 9 20 -55%
Total 21.70
40
50
60
70
80
90
100
110
120
130
140
jan/1
3
mar/
13
mai/13
jul/13
set/
13
nov/1
3
jan/1
4
mar/
14
mai/14
jul/14
set/
14
nov/1
4
jan/1
5
mar/
15
mai/15
jul/15
set/
15
nov/1
5
jan/1
6
mar/
16
mai/16
BH SOUTH AMERICA BH EUROPE BH AFRICA
BH MIDDLE EAST BH FAR EAST
The majority of OPEC spare capacity (~ 3mb/day) sits with Libya, Nigeria, Venezuela, Iran and Saudi Arabia.
Around 40% of this capacity sits in extremely unstable countries (Nigeria, Venezuela and Libya)
Selected oil producing countries (kb/day) OPEC oil production (kb/day)
Energy Fundamentals: Oil Supply: declines are starting to accelerate in some regions
25
Source: Energy Intelligence & OPEC, July 2016
1250
1500
1750
2000
2250
2500
2750
Angola Nigeria Mexico Venezuela Brazil
26000
27000
28000
29000
30000
31000
32000
33000
34000
01/1
2/2
004
01/0
8/2
005
01/0
4/2
006
01/1
2/2
006
01/0
8/2
007
01/0
4/2
008
01/1
2/2
008
01/0
8/2
009
01/0
4/2
010
01/1
2/2
010
01/0
8/2
011
01/0
4/2
012
01/1
2/2
012
01/0
8/2
013
01/0
4/2
014
01/1
2/2
014
01/0
8/2
015
01/0
4/2
016
OPEC Production (kb/day)
The 80% cut in US oil directed drilling activity is much steeper than the 46% cut in 2009
US shale plays generate negative returns at current prices, there will be no increase in activity until pricing improves
Lowest rig count in Canada since 1992
Baker Hughes US Oil Rig-Count Baker Hughes Canada Rig-Count
Energy Fundamentals: Oil Supply: North American cut in drilling activity has exceeded expectations
26
Source: Baker Hughes, Schroders, July 2016
200
300
400
500
600
700
800
900
1.000
1.100
1.200
1.300
1.400
1.500
1.600
1.700
1 3 5 7 911
13
15
17
19
21
23
25
27
29
31
33
35
37
39
41
43
45
47
49
51
2011 2012 2013 2014 2015 2016
0
50
100
150
200
250
300
350
400
450
500
550
600
650
700
1 3 5 7 9
11
13
15
17
19
21
23
25
27
29
31
33
35
37
39
41
43
45
47
49
51
2011 2012 2013 2014 2015 2016
US core regional shale oil production (barrels/day)
Energy Fundamentals: Oil Supply: US oil production will continue declining into 2017
Analysing the EIA well production data
and assuming the rig count stays flat at
current levels, we expect production
from these core shale regions to decline
in 2016
Based on our conversations with
management teams, we believe that
companies are currently drilling their
best wells to maximise production per
rig. This will result in productivity per rig
declining as drilling activity
picks up
The monthly decline rate from these four
regions is 6%. This has increased from
3% since 2010 and we expect it to
continue increasing over time
US oil production levels are already
down 1M bpd from the peak in April
2015. At current activity levels, Core
Labs projects US crude oil production
onshore to fall a further 700 - 800k bpd
in 2016/2017.
27
Source: EIA, Schroders July 2016
-
500.000
1.000.000
1.500.000
2.000.000
2.500.000
3.000.000
3.500.000
4.000.000
4.500.000
5.000.000
5.500.000
6.000.000
Jan-1
1
May-1
1
Sep-1
1
Jan-1
2
May-1
2
Sep-1
2
Jan-1
3
May-1
3
Sep-1
3
Jan-1
4
May-1
4
Sep-1
4
Jan-1
5
May-1
5
Sep-1
5
Jan-1
6
May-1
6
Sep-1
6
Jan-1
7
May-1
7
Sep-1
7Bakken (bl/day) Eagle Ford (bl/day) Permian (bl/day) Niobrara (bl/day)
Global Oil Market Quarterly Stockbuild (mn bls/day)
Energy Fundamentals: Oil Supply: global inventories are starting to fall
28
Source: Schroders (forecast), Energy Aspects (actual)
-2,00
-1,50
-1,00
-0,50
0,00
0,50
1,00
1,50
2,00
Q1-15a Q2-15a Q3-15a Q4-15a Q1-16f Q2-16f Q3-16f Q4-16f
0
1
2
3
4
5
6
7
55
57
59
61
63
65
67
69
71
73
75
jul/10 jan/11 jul/11 jan/12 jul/12 jan/13 jul/13 jan/14 jul/14 jan/15 jul/15 jan/16 jul/16 jan/17
29
Source: Bloomberg; Schroders – 1 September 2016
US Natural Gas Supply – Price Matters
BCF/D
Energy Fundamentals
$/mmtbu
US Gas Production - LHS
Price - RHS
0%
10%
20%
30%
40%
50%
60%
200
1-0
1-0
1
200
1-0
7-0
1
200
2-0
1-0
1
200
2-0
7-0
1
200
3-0
1-0
1
200
3-0
7-0
1
200
4-0
1-0
1
200
4-0
7-0
1
200
5-0
1-0
1
200
5-0
7-0
1
200
6-0
1-0
1
200
6-0
7-0
1
200
7-0
1-0
1
200
7-0
7-0
1
200
8-0
1-0
1
200
8-0
7-0
1
200
9-0
1-0
1
200
9-0
7-0
1
201
0-0
1-0
1
201
0-0
7-0
1
201
1-0
1-0
1
201
1-0
7-0
1
201
2-0
1-0
1
201
2-0
7-0
1
201
3-0
1-0
1
201
3-0
7-0
1
201
4-0
1-0
1
201
4-0
7-0
1
201
5-0
1-0
1
201
5-0
7-0
1
201
6-0
1-0
1
Coal Nat Gas Nuclear Renewables
Energy Fundamentals: US Natural Gas
30
Source: U.S. Energy Information Administration, Monthly Energy Review, Short-Term Energy Outlook – July 2016
US Natural Gas consumption rising steadily led by power (CCGT) demand
Share of total U.S. electricity generation by source • EPA mercury limits are still
encouraging power
producers to switch away
from coal fired generation.
• Coal fired generating
capacity in the US has
dropped from 320 GW in
2008 to 276 GW in May
2016. A further 2 – 5 GW of
capacity is expected to be
retired by the end of 2016.
• 21 – 28 GW of new CCGT
capacity is coming online
between 2016 and 2020.
This equates to an
incremental 2.5 – 3.4Bcf/day
of new gas demand (CCGT
gas demand = 27Bcf/day in
2016).
Energy Fundamentals: US Natural Gas Mexico needs US gas volumes. Export capacity is increasing in 2016/2017
31
Source: PEMEX Schroders - July 2016
US gas exports to Mexico
1.500
1.700
1.900
2.100
2.300
2.500
2.700
4.000
4.500
5.000
5.500
6.000
6.500
7.000 Mexico Gas Output
LHS
Mexico Oil Production
RHS
Oil and gas output - Mexico
2,5
3,0
3,5
4,0
4,5
5,0
Pipeline expansion
Bcf/day
• Pemex expect oil and gas production to fall around 5 – 8% in 2016. 2016 capital expenditure has been cut 60%
from 2014 levels and we think that this is likely to result in an acceleration in declines in 2017.
Kb/d
ay
Mcf/
day
Metals Fundamentals: Aluminium A wall of planned new Chinese supply remains
32
Source: NBS, Bloomberg, Schroders – July 2016
Table of major Chinese aluminium smelting projects
Smelter Location 2015 2016e 2017e 2016e 2017e
Guangxi Suyuan Guangxi - - 126 - 126
Baise Mining Guangxi - 114 180 114 66
Guizhou Qingzheng Guizhou - - 145 - 145
Baotou I.Mongolia 535 549 675 13 126
Jinlian I.Mongolia 502 833 1100 332 267
Zhaqi I.Mongolia 361 359 500 (2) 141
Liaoning Yinkou Liaoning 263 400 500 137 100
Qinghai Xinheng Hydro Qinghai 215 178 250 (37) 72
Shaanxi Meixin Shaanxi - - 125 - 125
Xinyuan Shandong 470 966 1240 496 274
Zouping Shandong 2571 2736 3000 165 264
Binzhou Shandong 384 746 960 362 214
Yangxin Shandong 439 580 616 141 36
Beihai Shandong 394 583 660 189 77
Xinjiang Xinfa Xinjiang 1686 1895 1900 210 5
Xinjiang East Hope Xinjiang 899 966 1208 67 242
Xinjiang Tianlong Xinjiang 178 203 250 25 47
Xinjiang Shenhuo Xinjiang 799 798 900 (1) 102
Xinjiang Tianshan Xinjiang 1017 1141 1466 125 325
Xinjiang Qiya Xinjiang 764 874 900 109 26
Selected Aggregate Increase (CRU) 2,443 2,781
Total Chinese Production (Mt) 31.2 32.1 34.7
Grow th % 3% 8%
Grow th (Mt) 0.90 2.60
Production share of global % 54% 55% 57%
Change (Kt)Production Volume (Kt)
Metals Fundamentals: Copper Expect pressure on 2H Chinese net imports - bearish
33
Source: NBS ,Schroders – July 2016
China refined copper imports and exports China net refined copper imports (Kt)
0
50
100
150
200
250
300
350
400
450
500
ago/99 ago/01 ago/03 ago/05 ago/07 ago/09 ago/11 ago/13 ago/15
Kt
Imports
Exports
553 784
1.104
1.293 1.139 1.082
585
1.375 1.362
3.112
2.882
2.676
3.131
2.916
3.325 3.468
3.859
0
500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
4.500
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 Y
TD
…
Metals Fundamentals: Tin Tin stocks are approaching critical low levels
34
LME tin prices (US$/t) vs. LME tin stocks (Kt)
Source: Bloomberg, Schroders – September 2016
2.000-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Metals Fundamentals: Nickel Most producers are loss-making
35
Source: NBS, Bloomberg, Schroders – 31 August 2016
$/T
onne
Nickel 90th centile cost of
production - LHS
Price - RHS
60,000
30,000
20,000
10,000
Log Scale
Metals Fundamentals: Gold Real interest rates are a primary driver of gold prices
36
Source: Bloomberg, Schroders – July 2016
Gold prices plotted against real 5 year TIPS (inverted)
-1
-0,8
-0,6
-0,4
-0,2
0
0,2
0,4
0,6
0,8
11.000
1.050
1.100
1.150
1.200
1.250
1.300
1.350
1.400
jan/14 abr/14 jul/14 out/14 jan/15 abr/15 jul/15 out/15 jan/16 abr/16 jul/16 out/16
TIP
S, %
, sc
ale
inve
rted
Go
ld U
SD/o
z
XAU Currency Index
Metals Fundamentals: Gold Opportunity cost, political, and geo-political risk perceptions are secondary drivers
37
Source: BofA Merril Lynch, politicalhumor.com, Schroders – July 2016
Negatively yielding global fixed income assets Populism
Metals Fundamentals: Gold Chinese investment demand has huge potential from a tiny base.
38
Source: Bloomberg, Schroders – July 2016
0,0%
0,1%
0,2%
0,3%
0,4%
0,5%
0,6%
0,7%
0,8%
0,9%
jul 13 dez 13 mai 14 out 14 mar 15 ago 15 jan 16 jun 16
0
100
200
300
400
500
600
jul 13 dez 13 mai 14 out 14 mar 15 ago 15 jan 16 jun 16
Huaan Yifu
Guota
Huaan Yifu
Guotai
Main Chinese Gold ETF Holdings (Koz) Main Chinese Gold ETF Holdings (% Global
Known Holdings)
Gold / S&P 500 Ratio
Metals Fundamentals: Gold Cheap vs. financial assets
39
Source: Bloomberg; Schroders – 30 September 2016
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
5,0
5,5
6,0
6,5
1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
Gold Expensive
Gold Cheap
Metals Fundamentals: Gold U.S. Federal Reserve rate hikes – historical context
40
Source: Bloomberg, Schroders - September 2015
Gold price performance around historical Federal
Reserve hiking cycles
DXY performance around historical Federal Reserve
hiking cycles
60
70
80
90
100
110
120
130
TT
+9
T+
18
T+
27
T+
36
T+
45
T+
54
T+
63
T+
72
T+
81
T+
90
T+
99
T+
10
8T
+1
17
T+
12
6T
+1
35
T+
14
4T
+1
53
T+
16
2T
+1
71
T+
18
0T
+1
89
T+
19
8T
+2
07
T+
21
6T
+2
25
T+
23
4T
+2
43
60
70
80
90
100
110
120
130
T
T+
10
T+
20
T+
30
T+
40
T+
50
T+
60
T+
70
T+
80
T+
90
T+
10
0
T+
11
0
T+
12
0
T+
13
0
T+
14
0
T+
15
0
T+
16
0
T+
17
0
T+
18
0
T+
19
0
T+
20
0
T+
21
0
T+
22
0
T+
23
0
T+
24
0
T+
25
0
1986
1994
1999
2004
1986
1994
1999
2004
800
1.000
1.200
1.400
1.600
1.800
2.000
jan
/11
jul/
11
jan
/12
jul/
12
jan
/13
jul/
13
jan
/14
jul/
14
jan
/15
jul/
15
jan
/16
jul/
16
-50
-40
-30
-20
-10
0
10
20
30
40
50
jan
/11
jun
/11
no
v/1
1
abr/
12
set/
12
fev/
13
jul/
13
dez
/13
mai
/14
ou
t/1
4
mar
/15
ago
/15
jan
/16
jun
/16
Metals Sentiment Analysis: Gold All indicators are bullish
41
Source: Bloomberg; Schroders – 2 September 2016
Spot
Median Consensus
Forecast
Consensus Forecast Model Commitment of Traders Short Term Sentiment Indicator
-1,00000
-0,80000
-0,60000
-0,40000
-0,20000
0,00000
0,20000
0,40000
0,60000
jan
/11
jul/
11
jan
/12
jul/
12
jan
/13
jul/
13
jan
/14
jul/
14
jan
/15
jul/
15
jan
/16
jul/
16
Metals Chart analysis: Silver Momentum surge
42
Source: Updata; Bloomberg; Schroders – 4 October 2016
Agriculture:Supply risk A forgotten rising trend
43
Source: Schroders – 31May 2015, Munich Re, NOAA – National Centres for Environmental Information
World Natural Catastrophes 1980–
January 2015
Year ANOMALY
°C
2015 0.9
2014 0.74
2010 0.7
2013 0.66
2005 0.65
1998 0.63
2009 0.63
2012 0.62
2003 0.61
2006 0.61
Warmest periods of record:
1880–2015
25
45
65
85
105
125
145
165
185
205
225
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Agriculture: Fundamentals
44
Source: Bloomberg; Schroders – 9 September 2016
Trouble on the farm
Corn
Wheat
Soybean
0
100
200
300
400
500
600
700
1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
45
Source: USDA; Schroders – 12 September 2016
US Wheat: Nominal vs real prices
Index
Agriculture: Fundamentals
Nominal
Real prices
Agriculture: Value Agriculture commodities vs US Farmland
46
Source : Bloomberg – Q1 2016
0
50
100
150
200
250
300
350
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
US agriculture cropland
(national average)
Rogers Agriculture Total
Return Index
Base 100 as of 12/1997
0%
20%
40%
60%
80%
100%
120%
140%
0
10.000
20.000
30.000
40.000
50.000
60.000
70.000
80.000
90.000
100.000
1960/1961 1969/1970 1978/1979 1987/1988 1996/1997 2005/2006 2014/2015
Agriculture: Fundamentals Supply / Demand dynamics are bullish for sugar, rubber, coffee and oilseeds
47
Source: Schroders; USDA – Q2 2016 *Soybean, Rapeseed, Sunflower Seed, Peanut and Cottonseed
World sugar surplus / deficit
World coffee (Arabica & Robusta) ending stocks vs.
Stock-to-use ratio
World rubber surplus / deficit
World oilseeds* surplus / deficit
-800
-600
-400
-200
0
200
400
600
800
1.000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F
'000 tonnes
‘000 tonnes
Ending Stocks
Stock-to-use ratio
‘000 tonnes
‘000 Bags
-15.000
-10.000
-5.000
0
5.000
10.000
15.000
20.000
1959/1960 1969/1970 1979/1980 1989/1990 1999/2000 2009/2010
SURPLUS
DEFICIT
2015/2016
-2.9 mln tonnes
-25.000
-20.000
-15.000
-10.000
-5.000
0
5.000
10.000
15.000
20.000
25.000
1964/1965 1974/1975 1984/1985 1994/1995 2004/2005 2014/2015
SURPLUS
DEFICIT
0
50
100
150
200
250
300
350
400
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Agriculture: Fundamentals
48
Source: Bloomberg; Schroders – 8 September 2016
Coffee, Sugar: New bull market
Sugar
Coffee
Appendix
People Investment team and resources
Source: Schroders as of September 2016
Geoff Blanning Head of Commodities
Implementation
Cash Management – Christopher Smith
– Katie Tutcher
– Lee Clapton
Product Management – Christopher Wyke
– Matthew Michael
– Nichola Bellini
– Eric Nelson (NY)
– Fiona Petrie
– Lucy Connolly
Economics Team Asia (2)
Latin America (2)
North America (1)
Europe (1)
Asia (2)
Australia (1)
North America (1)
ENERGY (4) METALS (5) AGRICULTURE (1) ECONOMICS (5)
EQUITY ANALYSTS
Risk Management Team
Chart and Sentiment Analysis
– Malcolm Melville
Quantitative Research
– Oscar Agra
James Luke
Energy
Geoff Blanning
Metals Agriculture
Rodolphe Roche
Simon Hodges
Equities
John Coyle
Trading Quant Analysis
Dravasp Jhabvala
Mark Lacey
50
Investment Process
Fundamental
Quantitative
Technical
Sentiment
Global Review Quarterly
Commodity Reviews Weekly
Limits
Buy Discipline
Stop-Loss
Policy
Asset Allocation
Decision-Making Risk
Management Research
Source: Schroders
51
Investment process Summary: Crude Oil
Fundamentals
Quantitative
Technical
Sentiment
Forecasts
Conclusions
Supply Demand
Commodity Quant
Model
Trend, Momentum
and Pattern
Consensus Forecasts
and Investor Positioning
12 month expected Return:
Investment Decision
Markets
52
Source: Schroders – September 2016. For illustrative purposes only
Investment process Summary: Scorecard
Source: Schroders
Sectors shown for illustrative purposes only
and should not be viewed as a
recommendation to buy/sell. The views and
opinions are those of the Schroder
Commodities team and may change.
53
Commodity Fundamentals Quantitative Charts Sentiment Overall Score Commodity
Bearish Neutral Bullish Bearish Neutral Bullish Bearish Neutral Bullish Bearish Neutral Bullish
10/10/2016 -2 0 2 -1 0 1 -1 0 1 -1 0 1 -5 -4 -3 -2 -1 0 1 2 3 4 5 10/10/2016
Energy EnergyBrent Neutral Neutral Bullish Bearish 0 0 Brent
WTI Neutral Neutral Bullish Neutral 1 1 Crude Oil
Gas Oil Neutral Neutral Bullish Bearish 0 0 Gas Oil
Gasoline Neutral Neutral Bullish Neutral 1 1 Gasoline
Heating Oil Neutral Neutral Bullish Neutral 1 1 Heating Oil
US Nat Gas Bullish Bullish Bullish Bullish 5 0 US Nat Gas
UK Nat Gas Bullish Bullish Bullish Bearish 3 0 UK Nat Gas
Coal Neutral Neutral Bullish Bullish 2 0 CoalBase Metals Base MetalsAluminium Bearish Bullish Neutral Bearish -2 0 Aluminium
Copper Bearish Neutral Neutral Neutral -2 0 Copper
Lead Neutral Neutral Bullish Bullish 2 2 Lead
Nickel Neutral Neutral Bullish Bearish 0 0 Nickel
Tin Neutral Bearish Bullish Bullish 1 0 Tin
Zinc Bullish Neutral Bullish Bullish 4 2 Zinc
Iron Ore Neutral Neutral Neutral Bullish 1 2 Iron OrePrecious Metals Precious MetalsGold Bullish Neutral Neutral Bullish 3 -1 Gold
Palladium Neutral Bearish Neutral Bullish 0 -1 Palladium
Platinum Bullish Neutral Neutral Neutral 2 1 Platinum
Silver Bullish Neutral Bearish Bullish 2 -2 SilverGrains GrainsCorn Neutral Neutral Neutral Bearish -1 1 Corn
Oats Neutral Neutral Bearish Bearish -2 0 Oats
Rough Rice Neutral Bearish Neutral Bearish -2 0 Rough Rice
US Wheat Neutral Neutral Bearish Bearish -2 0 US Wheat
FR Wheat Neutral Neutral Neutral Neutral 0 0 FR WheatOil Seeds Oil SeedsCanola Neutral Neutral Bearish Neutral -1 0 Canola
Palm Oil Neutral Bearish Bullish Neutral 0 0 Palm Oil
Rapeseed Neutral Neutral Bullish Neutral 1 0 Rapeseed
Soybean Meal Neutral Neutral Neutral Bearish -1 -1 Soybean Meal
Soybean Oil Neutral Neutral Bullish Bullish 2 0 Soybean Oil
Soybeans Neutral Bullish Neutral Bearish 0 0 SoybeansSofts SoftsCocoa Neutral Neutral Bearish Neutral -1 0 Cocoa
Coffee Bullish Neutral Bullish Bullish 4 0 Coffee
Orange Juice Neutral Neutral Neutral Neutral 0 -1 Orange Juice
Sugar Bullish Neutral Bullish Bullish 4 0 SugarLivestock LivestockFeeder Cattle Neutral Neutral Bearish Bearish -2 -1 Feeder Cattle
Lean Hogs Neutral Bearish Bearish Bearish -3 0 Lean Hogs
Live Cattle Neutral Neutral Bearish Neutral -1 0 Live CattleMaterials MaterialsCotton Bullish Neutral Neutral Bullish 3 0 Cotton
Lumber Bullish Bullish Bullish Bullish 5 1 Lumber
Rubber Bullish Neutral Bullish Neutral 3 0 RubberCommodity Equities Commodity EquitiesOil Equities Neutral Neutral Bullish Bullish 2 1 Oil Equities
N.Gas Equities Bullish Neutral Neutral Bullish 3 0 N.Gas Equities
Coal Equities Neutral Neutral Bullish Bullish 2 0 Coal Equities
B.Metals Equities Bearish Neutral Bullish Bullish 0 0 B.Metals Equities
P.Metals Equities Neutral Neutral Bearish Bullish 0 0 P.Metals Equities
Ags Equities Neutral Neutral Neutral Bullish 1 0 Ags Equities
Qtr
Ch
.
Portfolio construction Liquidity-based diversification and exposure limits
Source: Schroders as at September 2016
Please note that such limits are internal and may be subject to change without notice
RISK CONTROL COMMODITY LIMITS
Tier I (max 20%) Tier II (max 10%) Tier III (max 5%)
WTI Crude* Nickel Tin
Brent Crude* Zinc Lead
Gasoline Silver Lean Hogs
Heating Oil Corn Cocoa
Gas Oil Live Cattle Feeder Cattle
Natural Gas Wheat Palm Oil
Copper Coffee Platinum
Aluminium Cotton Rubber
Gold Soybeans Orange Juice
Soybean Oil Rice
Soybean Meal Ethanol
Sugar Canola
Oats
*Maximum exposure to crude oil = 30% ANY OTHER
TOTAL Tier I: 100% TOTAL Tier II: 50% TOTAL Tier III: 25%
RISK CONTROL DIVERSIFICATION RULES
Min Max
Sector
Energy 20% 60%
Agriculture 20% 60%
Metals 20% 60%
Commodity
Tier I 20%
Tier II 10%
Tier III 5%
Asset Type
Swaps/ETFs/Futures 50% 100%
Equities 0% 25%
Cash 0% 33%
54
Research and reporting Regular in-depth reporting and research
55
Source: Schroders - September 2016
Biweekly strategy updates
Quarterly investment outlook
In-depth commodity analysis
Flagship quant analysis
Bios
56
Geoff Blanning
Head of Commodities
Head of Commodities; Energy Fund Manager
Head of Emerging Markets Debt and Commodity Group since
December 1998, member of the Schroders Group Management
Committee
Geoff conceived and developed Schroders Commodity
businesses from 2003
Investment career commenced in 1985 at NM Rothschild
Rodolphe Roche
Head of Commodity Research and Agriculture
Joined Schroders in early 2005 as a Fund Manager /
Agriculture Analyst
Worked on the design of Schroder AS Agriculture Fund
Commodity career commenced in 2001 at Planteureux SA
(Agriculture Brokerage Co.) as a Commodity Analyst before
becoming Head of Research
James Luke
Fund Manager / Metals Analyst
Joined Schroders August 2014
Formerly Co Head of Metals Research at JP Morgan
Previously Metals Research Analyst at UBS, Sanford C
Bernstein and China International Capital Corporation
Investment career commenced in 2005 at Williams De Broe
Mark Lacey
Fund Manager / Equities Analyst
Co-manager of SISF Schroders Global Energy Fund
Joined Schroders in 2013
Formerly portfolio manager of Investec Global Energy funds.
Formerly Head of global energy at Goldman Sachs
In 2006 was ranked as #1 energy investment specialist in the
2006 Thompson Extel survey
Investment career commenced in 1996 at Credit Suisse Asset
Management
John Coyle
Fund Manager / Equities Analyst
Co-manager of SISF Schroders Global Energy Fund
Joined Schroders in early 2005 as a Fund Manager
In 2013, was voted #1 energy investor in Europe by companies
in the Thompson Extel Survey
In 2001 was voted number one energy analyst in Thompson
Extel
Investment career commenced in 1994 at AXA Investment
Managers
Source: Schroders
Bios
Oscar Agra, CFA
Quantitative Analyst
Investment career commenced in 2010 when he joined the EMD
and Commodities team
Simon Hodges
Head of Trading and Implementation, EMD and Commodities
Joined Schroders in 2000
Investment career commenced in 1995 at Prolific Asset
Management
Katie Tutcher
Fund Manager’s Assistant
Joined Schroders in 2014, investment career started in 2012
Malcolm Melville
Fund Manager and Chart and Sentiment Analyst
Fund manager for the Wealth Preservation fund
Joined Schroders in 2010 and is responsible for Chart Analysis
and Sentiment Analysis
Investment career commenced in 1997 at Norwich Union
Investment Management
57
Dravasp Jhabvala
Commodities Quantitative Analyst
Joined Schroders in June 2014 as a quantitative analyst for
Commodities
Investment career commenced in 2007 at Pictet Banque & Cie
Source: Schroders
Bios
58
Christopher Wyke
Product Director
Joined Schroders in 2000 and is responsible for the product
management of EMD and Commodities
Investment career commenced in 1981 when he joined
Rothschild Asset Management
Matthew Michael
Product Director
Joined Schroders in 2004 and is responsible for the product
management of EMD and Commodities
Investment career commenced in 2000 at
The Royal Bank of Scotland
Nichola Bellini
Product Executive
Joined Schroders in 2006 and assists in the product
management of EMD and Commodities.
Investment career commenced in 2005 at Schroders
Fiona Petrie
Product Assistant
Joined Schroder’s in 2008 and assists in the product
management of EMD Commodities
Lucy Connolly
Product Assistant
Joined Schroder’s in 2010 and assists in the product
management of EMD and Commodities
Source: Schroders
Schroder AS Commodity Fund Performance: October 2005 – September 2016
59
* USD I Shares Gross Daily NAV to NAV
**Inception 31 October 2005 ^ For performance comparison purposes only
Source: Schroders; TR/J CRB ; S&P Goldman Sachs; BCOM TR; Rogers ICI
USD % 2005** 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
YTD
Schroder AS Commodity Fund * 3.00 18.62 34.73 -35.29 34.03 15.36 -6.04 0.11 -7.78 -23.83 -28.10 14.70
Average of all four indices^ 3.04 -3.36 25.19 -39.65 20.57 15.63 -7.46 -0.51 -5.06 -22.74 -26.75 7.41
S&P Goldman Sachs CI TR -1.09 -15.09 32.67 -46.49 13.48 9.03 -1.18 0.07 -1.22 -33.06 -32.86 5.30
Thomson Reuters/Jefferies CRB TR Index 5.60 -2.85 22.15 -35.04 23.65 17.60 -8.21 -3.28 -4.97 -17.90 -23.30 6.01
Bloomberg Commodity TR Index 3.45 2.07 16.23 -35.65 18.91 16.83 -13.32 -1.05 -9.52 -17.01 -24.66 8.87
Rogers Int. Commodity TR 4.24 3.05 30.01 -41.35 26.23 19.01 -6.93 2.02 -4.49 -22.21 -26.08 9.25
USD %
Since Inception **
Cumulative Total
Return
Annual Rate
of Return Volatility
Sharpe
Ratio
Schroder AS Commodity Fund * -10.25 -0.99 18.31 -0.02
Average of all four indices ^ -44.28 -5.21 19.58 -0.23
S&P Goldman Sachs CI TR -65.89 -9.38 23.45 -0.33
Thomson Reuters/Jefferies CRB TR Index -33.39 -3.65 18.51 -0.17
Bloomberg Commodity TR Index -42.04 -4.87 17.82 -0.25
Rogers Int. Commodity TR -29.89 -3.20 19.92 -0.12
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
fev/06 nov/06 ago/07 mai/08 fev/09 nov/09 ago/10 mai/11 fev/12 nov/12 ago/13 mai/14 fev/15 nov/15 ago/16
Schroders Commodity Strategy Sector allocations
Source: Schroders – 30 September 2016
Energy Metals Agriculture Cash
60
Schroder AS Commodity Fund Performance attribution by commodity*
61
*Since inception: 31 October 2005 to 31 August 2016
Source: Schroders; Bloomberg
Commodity Commodity Commodity
SchrodersIndex
AverageDifference Schroders
Index
AverageDifference Schroders
Index
AverageDifference
Crude Oil -15.18 -26.59 11.41 Barley 0.15 -0.18 0.33 Chicken 0.02 0.00 0.02
Ethanol 0.17 0.00 0.17 Corn -0.05 -0.02 -0.03 Feeder Cattle 0.00 -0.31 0.31
Gasoline -2.45 -1.03 -1.43 Oat 0.09 -0.10 0.19 Live Hogs -0.20 -0.09 -0.12
Gas Oil 1.22 -2.72 3.95 Wheat -1.30 -2.40 1.10 Lean Hogs -1.96 -1.87 -0.09
Heating Oil -3.05 -3.19 0.14 Total Grains -1.28 -2.85 1.57 Live Cattle -0.66 -1.98 1.32
Natural Gas -14.48 -24.03 9.55 Canola 0.20 -0.07 0.27 Seafood -0.02 0.00 -0.02
Coal 0.05 0.00 0.05 Palm Oil 1.13 0.00 1.13 Total Livestock -2.81 -4.21 1.40
Uranium -0.36 0.00 -0.36 Soybean Meal 1.04 0.33 0.71 Cotton -1.36 0.23 -1.58
Alternative Energy 0.17 0.00 0.17 Soybean Oil -0.16 -0.02 -0.15 Lumber -0.09 -0.59 0.50
Total Energy -32.46 -50.15 17.69 Rice 0.09 -0.15 0.25 Wool 0.03 -0.14 0.18
Aluminum -5.62 -2.51 -3.11 Rapeseed -0.03 0.00 -0.03 Rubber -0.18 -0.14 -0.04
Copper 1.91 3.17 -1.26 Soybean 6.74 5.73 1.01 Fertilizer 0.87 0.00 0.87
Iron Ore 0.10 0.00 0.10 Total Oilseeds 9.10 5.77 3.33 Total Materials & Fibers -0.74 -0.65 -0.09
Lead 2.93 0.71 2.22 Azuki Beans 0.00 -0.24 0.24 Total Agriculture 4.98 -1.77 6.75
Manganese -0.04 0.00 -0.04 Cocoa 0.50 1.20 -0.70
Molybdenum -0.07 0.00 -0.07 Coffee -0.91 -0.49 -0.42
Nickel 1.01 0.71 0.30 Milk 0.38 0.00 0.38 Collateral Cash 12.73 12.02 0.71
Tin 1.06 0.21 0.85 FCOJ 0.31 0.29 0.02
Zinc 3.04 0.85 2.18 Sugar 1.66 0.62 1.04
Total Base Metals 3.80 1.73 2.07 Tea 0.22 0.00 0.22
Gold 5.10 5.36 -0.25 Total Softs 2.11 1.56 0.54
Palladium 0.98 -0.14 1.12
Platinum 0.93 -0.05 0.98
Silver 7.32 1.93 5.39
Total Precious Metals 14.66 7.11 7.55
Total Metals 18.45 8.70 9.75
Energy and Metals Agriculture Agriculture (continued)
Schroders
Index
Average Difference
Total -12.67 -45.05 32.38
Actual Performance -11.68 -46.26 34.58
Residual -0.99 1.21 -2.20
17.8 Crude Oil
3.9 Gasoline
4.5 Heating Oil
9.0 Natural Gas
4.4 Aluminium
6.8 Copper
11.5 Gold
2.4 Nickel
4.8 Silver
3.3 Zinc
2.4 Coffee
5.9 Corn
1.4 Cotton
1.3 Lean Hogs
2.2 Live Cattle
5.3 Soybeans
2.7 Soybean Meal
2.7 Soybean Oil
4.8 Sugar
3.3 Wheat
Rogers Int. Commodity Index TR1 Bloomberg Commodity Index TR2
Commodity Indices
1Source: Rogers International Commodity Index – 31 January 2016 2Source: Bloomberg Commodity Index – 30 September 2016
29.0 Crude Oil
1.2 Gas Oil
3.0 Gasoline
1.8 Heating Oil
5.0 Natural Gas
4.0 Aluminium
4.0 Copper
5.0 Gold
2.0 Lead
1.0 Nickel
0.3 Palladium
1.8 Platinum
4.0 Silver
1.0 Tin
2.0 Zinc
1.0 Cocoa
2.0 Coffee
4.8 Corn
4.2 Cotton
2.0 Live Cattle
1.0 Lean Hogs
1.0 Lumber
0.1 Milk
0.5 Oats
0.6 Orange Juice
1.0 Rapeseed
0.8 Rough Rice
1.0 Rubber
3.5 Soybeans
0.8 Soybean Meal
2.0 Soybean Oil
2.0 Sugar
6.8 Wheat
Energy 40%
Metals 25.1%
Agriculture 34.9%
Energy 35.1%
Metals 33.1%
Agriculture 31.8%
62
41.5 Crude Oil
5.4 Gas Oil
5.0 Gasoline
4.9 Heating Oil
3.7 Natural Gas
3.2 Aluminium
3.8 Copper
4.4 Gold
0.8 Lead
0.7 Nickel
0.6 Silver
1.2 Zinc
0.5 Cocoa
1.1 Coffee
4.6 Corn
1.5 Cotton
1.0 Feeder Cattle
1.6 Lean Hogs
3.7 Live Cattle
3.5 Soybeans
3.3 Sugar
4.1 Wheat
23.0 Crude Oil
5.0 Gasoline
5.0 Heating Oil
6.0 Natural Gas
6.0 Aluminium
6.0 Copper
6.0 Gold
1.0 Nickel
1.0 Silver
5.0 Cocoa
5.0 Coffee
6.0 Corn
5.0 Cotton
1.0 Lean Hogs
6.0 Live Cattle
1.0 Orange Juice
6.0 Soybeans
5.0 Sugar
1.0 Wheat
S&P GSCI TR1 TR/J CRB Index TR2
Commodity Indices
1Source: S&P Goldman Sachs – 30 September 2016 2Source: Thomson Reuters Jefferies CRB Trader – 31 January 2016
Energy 60.5% Metals
14.6%
Agriculture 25.0%
Energy 39%
Metals 20%
Agriculture 41%
63
Schroder Commodity Composite Composite Disclosures as of: 31 March 2016
Definition of the Firm
The Firm is defined as all accounts managed by Schroder Investment Management in the UK and
US, by wholly owned subsidiaries of Schroders PLC. Prior to 1st January 2007 SIM London &
SIM North America existed as two separate Firms which were compliant & verified as separate
entities until 31st December 2006. The consolidation of these two Firms was made as part of a
move towards creating one global Firm. Composite and Firm assets reported prior to 1st January
2007 represent those of the legacy firm which managed the product. Prior to 1st January 2011 the
SPrIM (Schroder Property Investment Management) Firm existed separate to the Schroder
Investment Management UK and US Firm, from 1st January 2011 these Firms have been
combined into a single firm.
On April 2, 2013, Schroder U.S. Holdings Inc., a subsidiary of Schroders plc, purchased STW
Fixed Income Management LLC (STW) and on July 2, 2013, Schroders plc, purchased Cazenove
Capital Holdings; assets managed by STW and Cazenove are included in the Firm from 1st
January 2014. Assets Managed against a liability driven mandate are excluded from the GIPS
Firm.
A complete list and description of the Firm's composites and performance results is available
upon request.
Composite Definition
Accounts included in the Schroder Commodity Composite seek to achieve returns above the
Commodity Composite BM or similar benchmark or an equivalent benchmark by providing capital
growth through investing commodity related instruments worldwide. Accounts will have exposure
to to a braod range of commodities, across the energy, metals and agriculture sectors.
Derivatives will be strongly used and may be used to achieve the investment objective and to
reduce risk or manage the fund more efficiently.
Composite Construction
The composite returns include all of the Firm’s separate accounts and commingled funds which
are discretionary, fee paying, tax exempt and managed as described above. New accounts are
included in the composite one full month after inception date to ensure the account has been fully
invested. Terminated accounts are excluded from the composite at the end of the previous
month. This Composite has no minimum asset level for inclusion.
Composite Inception Date: 2005-10-31
Composite Creation Date: 2008-05-19
Performance Calculation
Composite returns are presented as gross returns, including cash, reinvestment of dividends,
interest and other income earned in the period and are calculated on a trade date basis after
transaction charges (brokerage commissions). Each account's investment performance rate of
return is calculated monthly in accordance with the 'time-weighted' rate of return method (Modified
Dietz). Additional information regarding policies for valuing portfolios, calculating and reporting
returns is available upon request. The Currency of the Composite is USD. Withholding Tax
treatment may vary from portfolio to portfolio within this composite.
Composite Fee
Net returns have been calculated based upon the actual fee rates charged to each account in the
composite. The following highest fees applied to the composite are:
Highest flat fees:
March 31, 2007 - March 31, 2010: 0.95%
March 31, 2010 - onwards: 1.15%
Highest variable fee:
Since inception: 0.75% + 20% out perfromance fee
Dispersion
Internal dispersion is calculated using asset weighted standard deviation of all portfolios where
there are at least 5 portfolios that are included in the composite for the entire year.
Additional Information
The exchange rates used are provided by WM. Each currency is valued at 4 pm on the last
business day of the month.
Additional information regarding policies for valuing portfolios, calculating and reporting returns
and a description of all composites are available on request.
GIPS Compliance and Verification
Schroder Investment Management (UK & US) claims compliance with the Global Investment
Performance Standards GIPS® and has prepared and presented this report in compliance with
the GIPS standards. Schroder Investment Management (UK & US) has been independently
verified for the periods 1st January 1996 to 31st December 2014. The verification report(s) are
available upon request.
Verification assesses whether (1) the firm has complied with all the composite construction
requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and
procedures are designed to calculate and present performance in compliance with the GIPS
standards. Verification does not ensure the accuracy of any specific composite presentation.
64
This presentation does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder Alternative Solutions (the “Company”). Nothing in this
document should be construed as advice and is therefore not a recommendation to buy or sell shares.
The Company qualifies as a Société d’Investissement à Caiptal Variable (“SICAV”) and as an alternative investment fund within the meaning of article 1(39) of the 2013 Law.
Subscriptions for shares of the Company can only be made on the basis of its prospectus together with the latest audited annual report (and subsequent unaudited semi-annual
report, if published), copies of which can be obtained, free of charge, from Schroder Investment Management (Luxembourg) S.A.
The distribution and promotion of the Company's units is restricted for the purpose of the 2013 Law, to professional investors who are supposed to have sufficient experience to
judge themselves the concept of risk-spreading and the information they need to form their opinion. Accordingly, this material is targeted to institutional; professional; existing
investors and newly accepted clients of the Schroder Group where reasonable steps have been taken to ensure that investment in the Company is suitable. This material should
not be relied upon by persons of any other description.
Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the
amount originally invested.
An investment in the company entails risks, which are fully described in the prospectus.
Schroders has expressed its own views and opinions in this document and these may change.
This document is issued by Schroder Investment Management 31 Gresham Street, London EC2V 7QA
This document may not be distributed to any unauthorised persons. For your security, communications may be taped or monitored.
Risk Considerations
The capital may be subject to circumstances and periods where returns could be negative. Therefore the capital is not guaranteed and may decrease.
Investments in money market instruments and deposits with financial institutions may be subject to price fluctuation or default by the issuer. Some of the amounts deposited may
not be returned to the fund.
Investments denominated in a currency other than that of the share-class may not be hedged. The market movements between those currencies will impact the share-class.
Procedures are in place to ensure that any commodity derivative instruments calling for physical delivery of the underlying commodity will be liquidated prior to delivery. But it may
be subject to an operational risk of mismatch.
The fund enters into financial derivative transactions. If the counterparty were to default, the unrealised profit on the transaction and the market exposure may be lost.
Forecasts
The forecasts stated in the document are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future
economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today’s date. Our assumptions may
change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide
you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change.
Important information
65
This material was prepared by Schroder Investment Management, in response to a request from the client sent to Schroder and should not be understood as an
analysis of any securities, advertising material, offer to purchase or sell, offer or recommendation of any financial assets or investment. The purpose of this
material is exclusively informative and does not include investment objectives, financial conditions or the particular and specific needs of any shareholders or other
investors. The opinions stated in this material pertain to Schroder and may change at any time. The opinions are based on the date of their submission and do not
encompass any fact that may have arisen after this date, hence, Schroder is not compelled to update this material to reflect such provisions after the submission
of the same. This material is for exclusive Financial Intermediary, Institutional and Consultant and should not be used as support material by other individuals.
THIS MATERIAL IS HIGHLY CONFIDENTIAL AND SHOULD NOT BE REPRODUCED OR DISTRIBUTED, ENTIRELY OR PARTIALLY, TO PERSONS
OTHER THAN THE ORIGINAL RECIPIENTS. The Fund and the distribution of the shares of the same are not registered at the Brazilian Securities Commission
"CVM", and therefore do not meet certain requirements and procedures usually observed in public offerings of securities registered with the CVM, with which
investors in Brazilian capital markets may be familiar. For this reason, the access of the investors to certain information regarding the Fund may be restricted.
SCHRODER DOES NOT GUARANTEE PERFORMANCE.
Important information
66