Returns in commodity and futures indexes outpaced broad stock and bond market indexes in 1994, with the overall outlook for 1995 still positive.
Long-only commodity indexes posted total 1994 returns of 5.29% from the Goldman Sachs Commodity Index, 10.65% from the Investable Commodity Index and 24.05% from the J.P. Morgan Commodity Index. The GSCI is a production-weighted index, and the ICI is an equal-weighted index. The J.P. Morgan index contains only energy and metals to correlate with inflation indicators such as the Producer Price Index.
The Barra/MLM Index, which goes long and short financial and commodity futures, was up more than 11% in 1994, fueled by price trends in contracts for coffee and copper, said Alan Kaufman, principal for the Mount Lucas Group, Princeton, N.J.
For the same period, the Standard & Poor's 500 Stock Index rose 1.32%, while the Salomon Broad Bond Index fell 2.85%.
Blythe Masters, vice president and commodity index product manager for J.P. Morgan, said the index should continue to perform well in 1995, underpinned by economic growth in Asia and Europe. Support also could come from the closing of oversold commodities positions that followed last year's interest rate hikes, and from a flight to quality in precious metals should global uncertainty pick up, she said.
M. Scott Manolis, president of Intermarket Management Inc., Somerset, N.J., creator of the ICI, said fears that China will not stand behind its trade commitments will be unfounded, which will support copper, cotton, sugar and wheat.
James P. Crimmins, vice president of commodity investment products for Goldman Sachs & Co., New York, said the somewhat modest return of the GSCI reflects the overall moderate price inflation seen in 1994.
But for 1995, Goldman anticipates above-average returns from the index, on the order of 10% to 12%. He noted industrial metals had a very strong 1994, which accounts for the difference between the GSCI and some other commodity indexes that contain a higher degree of metals.
Sydney futures list grows
SYDNEY, Australia - The Sydney Futures Exchange hopes to trade this year individual futures contracts on the stock of Foster's Brewing Group Ltd., South Yarra; CRA Ltd., Melbourne; Australian and New Zealand Banking Group Ltd., Melbourne.
A contract on Qantas airlines also is planned after the company goes public. The exchange also is seeking approval to have the contracts settled with the actual shares of stock. Contracts now are settled in cash.
The Sydney exchange is the only major exchange in the world that trades futures on individual stocks.
Accountants say no rules
WASHINGTON - The Securities and Exchange Commission has no business determining who should buy derivative securities, Commissioner Steven M. H. Wallman said at a conference sponsored by the American Institute of Certified Public Accountants.
"The SEC should not create suitability standards" for investors, he said. Nonetheless, Mr. Wallman strongly supports requiring companies and brokerage firms to give additional information on derivative holdings.
In addition, Walter P. Schuetze, chief accountant for the SEC, said the commission is trying to make additional guidance for companies on derivatives disclosure available in the first quarter.
Risk fear is exaggerated
WASHINGTON - Concerns about systemic risk in over-the-counter derivatives are out of proportion to the actual risks, said Franklin Edwards, a visiting scholar at the American Enterprise Institute for Public Policy Research, Washington.
Although some firms have incurred substantial derivatives-related losses, usually caused by either "mismanagement or ignorance," in general the OTC market appears to be working well, he said in a presentation to participants of an institute conference.
Mr. Edwards said the debate about systemic risk largely has overlooked the possibility that derivatives may reduce systemic risk. Regulation, conversely, could have "exacerbated market stresses by impeding the flow of funds."
Barry B. Burr and Vineeta Anand contributed to this column.
