FX.co ★ Commodity investments boosted profits to Canada's largest pension fund

Using commodities as a hedge against inflation boosted profits to Canada's largest pension fund.

The Ontario Teachers' Pension Plan Board said on Wednesday that its investment in commodities allowed them to earn a total net return of 3.8% in the first half of this year, and a total of 13.2% in the fund's profitability since 2020.

CIO Ziad Hindo noted that their diversified portfolio consistently delivered returns despite the uncertainty brought by the pandemic.

Reportedly, about 21% of the portfolio consists of inflation-sensitive assets, up 17% than in December 2020.

The increased exposure to these assets was associated with commodities, as the fund increased its stake from 8% to 12%.

Hindo said that commodities provide better protection against rising price pressures compared to stocks and bonds, especially when the prospects for inflation are unclear.

On a different note, dollar rose on Wednesday as US Treasury yields surged and oil prices slowed. Now, investors are waiting for the speech of Fed Chairman Jerome Powell at the Jackson Hole symposium as it may contain hints about tapering.

The yield on 10-year Treasury bonds reportedly rose 4.4 basis points to 1.33%, while the USD index, which measures dollar against a basket of six major trading currencies, jumped 0.028% to 92.941.

Valentin Marinov, an analyst at Credit Agricole, said weaker dollar could provoke a rise in bond purchases ahead of the publication of US data next week.

So far, it is up 0.3% to 1.2624 against the Canadian dollar, on the back of lower commodity prices, especially crude oil.

Loonie seems to be undervalued, but there is a chance that it would recover, as hinted by the recent easing in volatility. But narrowing spreads between US and Canada will make it difficult for the currency to strengthen.