CFA Level I · CFA Level I Exam · Natural Resources
Which approach to gaining exposure to natural resources is most likely to give an investor returns that differ from the commodity spot price because of equity market and company-specific factors?
Buying shares of commodity-producing companies gives returns that differ from spot prices because equity performance depends on management, leverage, costs and market sentiment as well as commodity prices. Physical holdings and forwards track the commodity price more closely.
- ABuying shares of commodity-producing companiesCorrect
- BHolding the physical commodity in storage
- CEntering a long position in a commodity forward
Explanation
Shares of producers are affected by management, leverage, costs and equity market sentiment in addition to commodity prices, so their returns diverge from spot prices. Physical holdings and forwards track the commodity price more directly.
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