Commodity Trade Finance Funds
The objective of the Fund is to generate attractive returns with limited risk and low volatility. For this purpose the Fund enters into contracts with traders or producers of commodities or participates in such transactions.
Commodity Trade Finance (CTF) is the financing of trading transactions where the traded goods are raw materials or semi-finished products. Typical goods are: crude oil and oil products, steel, metals, ores and other primary products, as well as agricultural products, such as wheat, corn etc. CTF loans are self-liquidating and secured by the traded commodity and the generated accounts’ receivable, whereby only one specific transaction is financed. To sum it up, the purchase price of a certain commodity will be financed and repaid through the sale of these goods. The collateral and the link to the physical goods and real transactions lead to relatively low failure rates.
The fund may invest assets in the following financing categories:
- Short-term trade finance incl. transport and warehouse finance
- Purchase and Financing of receivables
- Pre-export Financing
- Repo transactions
The price risk is typically excluded from the transaction.
Short-term trade financing is a safe investment compared to other asset classes, as the structural elements and the easily marketable collateral leads to much lower default rates and to lower losses in case of a default.
Global commodities trade has enjoyed positive growth in the past as shown in the table below
A crucial point for the stable returns is also that the Fund performance does not depend on the raw material prices, but only on the supply and demand for financing of raw materials.
CTF loans show very little correlation to other asset classes as shares, bonds, real estate etc. This makes the CTF Fund an excellent instrument for investors who strive for further diversification of their portfolios.
CTF Loans are of a short-term nature and normally with a variable interest rate, therefore the margins are fixed and the interest rate risk limited.
While raw materials are often exported from countries with low credit ratings, CTF loans are subject to only small country risk, since the loan repayment is made from the purchasers of the raw materials who are mostly located in developed countries. In addition the risk is limited through suitable instruments such as letters of credit and insurance.