Connect with us

Mining

Commodities: To Short, or Not to Short?

Published

on

Commodities: To Short, or Not to Short? [Chart]

Commodities: To Short, or Not to Short? [Chart]

Comparing “Dogs of the Dow” inspired strategies over the last decade

The Chart of the Week is a weekly Visual Capitalist feature on Fridays.

Over the last week, we have received a wide variety of reactions from our audience regarding the Periodic Table of Commodity Returns that we published last Thursday from our friends at U.S. Global Investors.

The most interesting email came from Brad Farquhar, the Executive Vice President and CFO of Input Capital, a Canadian-based agricultural streaming company. In his email, Brad attached a chart summarizing the cumulative returns using a long/short commodity strategy where he imagined going long on the worst performing commodity of the previous year, while shorting the best performing commodity.

For example, the long-only portfolio would have invested in natural gas in 2007, because gas was the worst performing commodity in 2006 with a -43.9% return. The short-only strategy would have shorted nickel in 2007 (betting that nickel would drop in price) because it was the best performer of 2007 with 145.5% returns.

On a cumulative basis (re-investing money from each year), the long-only strategy returned -0.9% compound annualized growth between 2007 and 2015, while the short-only strategy brought in 12.4% annualized returns.

A 50/50 hybrid (50% long, and 50% short) gave us the equivalent of 9.6% returns each year.

Our Variation

Inspired by Brad’s analysis, we did our own variation of this “Dogs of the Dow” type of exercise to look at these long and short commodity portfolios in a slightly different light.

We analyzed five portfolios (100% long, 75% long, 50% long/short, 75% short, and 100% short) for the average annual return, volatility, and number of years with positive returns.

Here’s the results:

Portfolio
Return
Standard Deviation
# of Positive Years
100% long
9.0%
54.9%
4
75% long
10.3%
39.7%
6
50% long/short
11.7%
25.8%
5
75% short
13.1%
16.9%
7
100% short
14.5%
20.9%
7

The best performing portfolio was 100% short, with an average annual return of 14.5%. The 75% short portfolio had nearly as good of returns at 13.1%, with the lowest volatility (using standard deviation) at +/- 17%.

Both the 100% short and 75% short portfolios provided positive returns in 7 of the last 9 years. Meanwhile, going long was much more risky. A 100% long portfolio had gains in only 4 of 9 years, with a huge standard deviation of +/- 55%.

Over the time period in question, energy commodities killed portfolios with “long” exposure. In 2011 and in 2015, the worst performer of the previous year (natural gas and oil respectively) was also the worst performer the following year, creating terrible returns for the long-heavy portfolios.

Oil, for example, was down -45.6% in 2014 and then was also down -30.5% in 2015. Not a very effective strategy.

What will be a better trade in 2016: shorting the best performing commodity of last year (lead), or going long on nickel, the worst performer of 2015?

Click for Comments

Uranium

Charted: Global Uranium Reserves, by Country

We visualize the distribution of the world’s uranium reserves by country, with 3 countries accounting for more than half of total reserves.

Published

on

A cropped chart visualizing the distribution of the global uranium reserves, by country.

Charted: Global Uranium Reserves, by Country

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

There can be a tendency to believe that uranium deposits are scarce from the critical role it plays in generating nuclear energy, along with all the costs and consequences related to the field.

But uranium is actually fairly plentiful: it’s more abundant than gold and silver, for example, and about as present as tin in the Earth’s crust.

We visualize the distribution of the world’s uranium resources by country, as of 2021. Figures come from the World Nuclear Association, last updated on August 2023.

Ranked: Uranium Reserves By Country (2021)

Australia, Kazakhstan, and Canada have the largest shares of available uranium resources—accounting for more than 50% of total global reserves.

But within these three, Australia is the clear standout, with more than 1.7 million tonnes of uranium discovered (28% of the world’s reserves) currently. Its Olympic Dam mine, located about 600 kilometers north of Adelaide, is the the largest single deposit of uranium in the world—and also, interestingly, the fourth largest copper deposit.

Despite this, Australia is only the fourth biggest uranium producer currently, and ranks fifth for all-time uranium production.

CountryShare of Global
Reserves
Uranium Reserves (Tonnes)
🇦🇺 Australia28%1.7M
🇰🇿 Kazakhstan13%815K
🇨🇦 Canada10%589K
🇷🇺 Russia8%481K
🇳🇦 Namibia8%470K
🇿🇦 South Africa5%321K
🇧🇷 Brazil5%311K
🇳🇪 Niger5%277K
🇨🇳 China4%224K
🇲🇳 Mongolia2%145K
🇺🇿 Uzbekistan2%131K
🇺🇦 Ukraine2%107K
🌍 Rest of World9%524K
Total100%6M

Figures are rounded.

Outside the top three, Russia and Namibia both have roughly the same amount of uranium reserves: about 8% each, which works out to roughly 470,000 tonnes.

South Africa, Brazil, and Niger all have 5% each of the world’s total deposits as well.

China completes the top 10, with a 3% share of uranium reserves, or about 224,000 tonnes.

A caveat to this is that current data is based on known uranium reserves that are capable of being mined economically. The total amount of the world’s uranium is not known exactly—and new deposits can be found all the time. In fact the world’s known uranium reserves increased by about 25% in the last decade alone, thanks to better technology that improves exploration efforts.

Meanwhile, not all uranium deposits are equal. For example, in the aforementioned Olympic Dam, uranium is recovered as a byproduct of copper mining occurring at the same site. In South Africa, it emerges as a byproduct during treatment of ores in the gold mining process. Orebodies with high concentrations of two substances can increase margins, as costs can be shared for two different products.

Continue Reading

Subscribe

Popular