HardAssetsInvestor

Mike Norman, Hard Assets Investor (Norman): Hello everybody, and welcome to HardAssetsInvestor.com. I'm Mike Norman, your host. My guest today is Martin Kremenstein, who is the CEO of DB Commodity Services. Martin, thanks very much for coming on the show.

Martin Kremenstein, CEO, DB Commodity Services (Kremenstein): Thanks for having me.

Norman: I want to talk a little bit about Deutsche Bank, obviously a major bank, major player in the financial sector in the global financial markets. What is the involvement now in terms of commodities in the DB business model? I've heard a lot of the big banks are cutting back on their commodities division, but DB is still very active in that area, correct?

Kremenstein: Yes, DB has a very big commodities business, running kind of the whole gamut from retail investor products through to institutional trade servicing and financing and risk management for industry participants. It's a fairly key business I think, the deutsche.

Norman: Now DB, obviously, as a large bank, deals with major corporations and large entities. How much involvement now do you see from, let's say, the smaller retail client, if any, looking for commodity-based products?

Kremenstein: The retail investor base and their involvement in commodities is precisely the business that I deal with. We're seeing a huge amount of growth and interest from the retail investor base over the last six, seven years. I think it really started actually in 2003, when GLD was launched—the first gold ETF. And since then—when we launched our first commodity fund, which is the first commodity futures-based fund, in 2006 (that product is DBC)—we've seen investor interest grow further still. GLD is now a $70 billion fund; DVC is now in the $6 billion to $7 billion range. And they're not the only products out there. There is a suite of products out there, different providers all offering different takes on the space for investors to put in their portfolio.

Norman: Now, was it the advent of these new instruments that allows investors to participate, I think, more easily? Or was it just this kind of realization or acceptance, let's say, of commodities as an asset class, and people needed to be exposed to that, or maybe both?

Kremenstein: I think it's a combination of things. Investors on the institutional level have been able to get involved in commodities through swap, through structured notes, through separate …

Norman: Futures.

Kremenstein: Yes, or managing their own futures portfolios. For the retail investor, they're really only able to get exposure by using mutual funds, a lot of which weren't really well-optimized for the futures world. So I think the advent of the exchange-traded fund certainly gave a lot more retail investors an easier way to get quantities(?) in their portfolio.

However, if there was no interest, there would have been no point putting the products out. And I think a lot of investors are driven to commodities by a combination of things. One is the low correlation with other asset classes. Historically, commodities have been a very good diversifier for a stock and bond portfolio.

I think also investors are worried about inflation. A lot of investors are saving for their retirement. And one of the biggest causes, or one of the biggest destroyers of wealth, as you get to retirement, is going to be inflation. Commodities correlate extremely well with inflation. And so they're a very good tool for the portfolio if you're looking to inflation-hedge.

And I think the third thing is that over the last five or six years, we've seen a lot of debasement of developed-market currencies and devaluation of these currencies. And as currencies devalue, the value of real assets such as land, such as hard assets, will tend to rise. And I think that's been another thing that's really driven investors towards the hard asset and commodities base.