The Year That Was And Will Be…Arion 2017 Wrap

Update on the business

It has been an interesting and exciting time for all of us here at Arion Investment Management over the last year. Our second full year in existence, but our first in terms of opening our doors to external investors with the launch of the Raptor Commodities Fund.

Our focus for 2018 will be to continue to deliver on our investment thesis within the Raptor Commodities Fund and persist with growing the company. We are being targeted by investors due to our capabilities in terms of offering non-replicable alpha born from our expertise within the commodities space – an area we believe will also see growth over this year.

There is a general sense in the market that Hedge Funds are back in favour. Hedge Fund managers are once again looking to exploit alpha opportunities, some of which resulting from the traditional cyclical shift from over to under-regulation. More broadly speaking, the industry has continued to grow and has reached all-time highs for the 10^th year in a row.

Review of commodities market in 2017

The commodities market, as ever, threw up some surprises over 2017.

It was a game of two halves as a broad basket of base and precious meandered through the first two quarters only to spring into life and rally hard over the second half of the year.

Palladium was the outright winner, ending the calendar year up 56%, and although most other precious metals ended the year very well also, they were outperformed by base.

Outlook for commodities markets in 2018

After a bumper 2017 most analysts remain ‘overweight’ commodities in general with a positive 2018 outlook driven by growth in the manufacturing sector leading to robust demand for raw materials. 

In a Goldman Sachs note from early last month, the bank expected the commodity sector to generate returns on average of just under 10% over 2018.

Other key drivers include:

• China’s ‘Belt and Road initiative’ (China’s share of world metal consumption has surpassed 50% for the first time since 2015). The country estimates its total investment value at just shy of USD 900bn

• Chinese environmental policy cuts

• USD weakness (2017 was the dollar’s weakest year vs a basket of major currencies in more than a decade)

• Possible added US infrastructure spending

• EV’s and the rise of metals used in producing their batteries

GCSI/S&P500 ratio

Source: Dr Torsten Dennin, Bloomberg

The above chart outlines the valuation of the GSCI (Goldman Sachs Commodity Index) relative to the S&P500. The illustration clearly shows where we are in the cycle.

As QE continues to wind-down, metal markets continue to be led by fundamentals and less by the printing of money. In turn, we see this as potentially leading to more volatility in commodity markets, and creating opportunity for us here at Arion.

I look forward to, and hope for, a rewarding and prosperous 2018 for us all.
 
Regards,
Gerardo Tarricone
Founder & Managing Director

Disclaimer: Although this document has been issued by Arion Investment Management, it is important to note that the views of the author(s) may or may not represent that of the company. The document has been derived from sources believed to be current and accurate as at the date of release. The comments made are general in nature and do not take into account anyone’s personal needs, financial situation or requirements and past performance is not an indicator of future returns. Before acting upon anything associated with this document we would recommend seeking advice from your financial advisor.

This document is a 'Marketing Communication' as defined in Directive 2014/65/EU of the European Parliament and the Council ("MiFID II") and Commission Delegated Directive (EU) 2017/593 ("MiFID Org Regulation"). This publication is not intended as investment research. This publication has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, and is not subject to any regulatory prohibition on dealing ahead of the dissemination of investment research. Arion Investment Management does not make any representations as to the monetary value of this publication. For further information, please contact: info@arioninvestmentmanagement.com.

About the company; Arion Investment Management Limited is a commodity focused investment management company, based in London. The company is authorised and regulated by the Financial Conduct Authority (registered no. 742037).