UBS Investment Bank has launched the UBS Commodities Portfolio Algorithmic Strategy System (Comm-PASS), a portfolio-based algorithmic strategy that exploits momentum in the commodity markets to generate returns through automated long and short strategies.
The portfolio consists of a basket of strategies on 19 commodity futures markets from five sectors, energy, precious metals, base metals, agriculture and livestock. The portfolio is weighted to maintain a diversified portfolio, taking into account liquidity issues.
'As familiarity with the commodities asset class grows, an increasing number of investors are recognising the value of taking a more active approach with their investment strategy,' says UBS's global head of commodities Peter Ghavami.
'UBS Comm-PASS is the first of a new generation of portfolio-based algorithmic strategy products for the commodities asset class which allows for the generation of returns in both bull and bear markets.'
Each strategy generates dynamic long or short signals in an individual commodity, taking into account both the trend and counter-trend characteristics of specific commodities in combination with the asymmetric return distribution seen in the commodity markets.
The system adjusts positions based on signals generated from current market conditions in order constantly to capture new market opportunities for each commodity.
The algorithm's parameters for each strategy within UBS Comm-PASS are chosen independently of the other strategies. According to UBS, this independence leads to a lower correlation between returns of individual strategies and to higher Sharpe and Calmar ratios for the overall portfolio.
'For the last few years, commodity price volatility has been substantially greater than other asset classes, largely due to supply concerns as well as changes in global consumption and the influx of financial commodity investments,' says James Paget, co-head of structured commodity sales for Europe, the Middle East and Africa.
'High volatility offers trading opportunities provided an appropriate trading strategy is implemented. We believe Comm-PASS offers investors the opportunity to generate high returns by exploiting commodity market characteristics.'