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Market action over the past couple of years, however, has been telling clients that owning commodities might, indeed, be a good thing, too - if for no other reason than risk diversification.
Owning the stock of commodities exchanges? Now, that has proven to be profit proposition.
The Chicago Mercantile Exchange started things off by going public in December 2002. If you were lucky enough to have snagged shares at the $35 initial offering price, you'd now be sitting on a not-too-shabby return of 1,899% before dividends.
The Merc changed its ownership structure primarily to provide capital for acquisitions. The primary target in the Merc's sights was cross-town rival the Chicago Board of Trade. The Board struggled through a litigious demutualization process of its own, finally emerging on the market in October 2005 with an IPO at $54 per share.
Meanwhile, in a galaxy far, far away, another commodity exchange prepared to troll the share market. The InterContinental Exchange, the electronic successor to the International Petroleum Exchange, dangled its shares before the public at $56 per copy in October 2006
The first use of ICE's new war chest was the member-owned New York Board of Trade, which was acquired in January 2007. Adding softs to its repertoire still left ICE with a hole in its offerings, one that exchange execs thought could be nicely filled by the apple of the Merc's eye, the Board.
A nasty bidding war broke out in 2007 over the venerable Chicago bourse, with the Merc finally emerging in July as the ultimate victor.
You shouldn't feel bad for ICE shareholders for losing the bidding war: As salve to their wounds, those $56 shares are now worth more than $174.
Board shareholders fared even better. Their shares ceased trading at $227, more than 321% higher than their IPO price.
Commodities prices as measured by conventional indexes such as the S&P Goldman Sachs Commodity Index seem to have languished over the past 18 months. S&P/GSCI's compound annual growth rate has only been 1.7%. Contango's effect has dampened returns somewhat. (See "Futures: The Three Sources of Returns" in Hard Assets University.)
There's no contango drag felt by CME's or ICE's stockholders. Their shares have risen at a compound annual rate of 35.9% and 128.3%, respectively.
Who says there's no money to be made in commodities?
Perhaps a better question now might be, "How long can it last?"
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