Direct vs. Indirect Commodity Investment

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Malloozer

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Based on the readings in both CFAI and Schweser I was under the following impression:
Direct investment in commodities involves either cash market purchase or exposure to changes in spot market prices via derivatives, namely futures. Indirect investment in commodities involves acquiring an indirect claim such as equity in companies specializing in commodity production. (SS13, CFAI Page 47)
The SS13 summary (CFAI Page 113 near the bottom of the page) seems to contradict the reading:
“There are two broad approaches to investing in commodities: direct and indirect. Direct commodity investment entails purchase of the physical commodities (…). In contrast, indirect investment in commodities involves the acquisition of claims on commodities, such as in futures markets.”
With all this studying I know I’m on the verge of going crazy, but I’m pretty sure these two statements don’t match….
 
I don’t think you’re crazy. Seems to be contradictory.
 
Agreed…that’s strange.
I was always under the impression Futures are direct investments as you are buying the commodity (just in the future).
I think the second statement is wrong. It defines indirect investment as an ‘acquisition of claims on commodities’. I think we all agree equity shares in commodity companies (ExxonMobil?) are considered indirect investments. Equity shares would therefore not be considered indirect investments by the second definition….which I think is silly.
As the CFAI would say….the first statement is more correct, and least likely to be incorrect.
 
all the instruments that give you a return directly affected by the price of oil (i.e) - that is actual commodity, futures, options etc should be considered direct.
Direct is not related to claims but to how return on your investment is related to return on the actual commodity
 
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