Energy sector drives double digit returns in major indices

May marked a turning point for commodities as significant gains in the energy sector drove double digit returns in major indices, pushing the sector into positive territory for the year, according to Credit Suisse.

This represents the third straight month of gains in the space.

Andrew Karsh, co-lead portfolio manager for the Credit Suisse Total Commodity Return Strategy, says: ‘The month of May has proven to be a major inflection point for commodities, as the global markets have begun to build in expectation of an economic recovery. Along with a weakening US dollar, hedgers and investors alike have realized the potential for upward pressure that this return to economic normalcy will have on commodities prices and inflation in general.’

Energy was the best-performing sector, up 22.56 per cent for the month of May. Prior to last month it was the worst performing sector year-to-date.

The Dow Jones-UBS Commodity Total Return Index gained for the third month in a row, returning a robust 13.00 per cent. Overall, gasoline and crude oil were the strongest performers, up 28.82 per cent and 26.85 per cent, respectively. The surge of both gasoline and crude oil can be explained by a declining US dollar and an economy demonstrating signs of recovery and lower than expected crude oil inventories.

Aluminum was the biggest decliner of the month, followed by live cattle and lean hogs. Aluminum fell 4.37 per cent due to rising LME levels. Live cattle, down 1.39 per cent, and lean hogs, down 1.32 per cent, declined in May due to higher feed costs in addition to the continued fears of the swine flu which affected lean hog prices.

Credit Suisse’s Total Commodity Return Strategy seeks to outperform the return of a commodities index, such as the Dow Jones-UBS Commodity Index Total Return or the S&P GSCI Total Return Index, using a quantitative commodity research process.