Goldman Sachs Commodity Enhanced Curve Strategy...Instead of buying the physical commodity, a...

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Confidential

Equity Derivatives Structuring

SECURITIES DIVISION

Goldman Sachs Commodity

Enhanced Curve Strategy

Private and Confidential

For Institutional Investors Only

For Discussion Purposes Only

Not for Onward Distribution

Q4 2019

Prepared by a Goldman Sachs sales and trading desk, which may have a

position in the products mentioned that is inconsistent with the views expressed

in this material. In evaluating this material, you should know that it could have

been previously provided to other clients and/or internal Goldman Sachs

personnel, who could have already acted on it.

This material is not independent advice and is not a product of

Global Investment Research.

This material is a solicitation of derivatives

business generally, only for the purposes of,

and to the extent it would otherwise be subject

to, CFTC Regulations 1.71 and 23.605.

The views or ideas expressed here are those of the desk and/or

author only and are not an “official view” of Goldman Sachs; others

at Goldman Sachs may have opinions or may express views that

are contrary to those herein.

References to ‘we’ refer to those of the desk only and does not represent the official view of GS.

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Investing in Commodities

Confidential

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Investing in Commodities Introduction to Commodities

Source: Goldman Sachs Securities Division, as of September 30, 2019. For illustrative purposes only.

Basic economic principles of supply and demand typically drive the

commodities markets: lower supply drives up demand,

which results in higher prices, and vice versa.

Investing in commodities is potentially a way to diversify a

traditional equity & bond portfolio, and could also potentially

protect against inflation.

Instead of buying the physical commodity, a popular way to invest in

commodities is through a futures contract, which is an agreement to buy

or sell a specific quantity of a commodity at a set price at a later time.

There are typically two types of investors in commodities:

(1) Hedgers (e.g. producers or consumers that want to reduce the risk of change in price);

and

(2) Speculators (e.g. investors that would like to profit from changes in price of

commodities)

Trading commodities is an old profession dating back further than trading stocks and

bonds. Commodities can generally be divided into five categories:

(1) Energy (e.g. Crude Oil, Natural Gas); (2) Precious Metals (e.g. Gold, Silver);

(3) Industrial Metals (e.g. Aluminum, Copper);

(4) Agriculture (e.g. Corn, Sugar); (5) Livestock (e.g. Live Cattle, Hogs)

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Investing in Commodities Overview


When investing in commodities, it is not possible to invest in commodity

“spot prices”. Rather investors could invest by:

i.e. a barrel of oil, a bushel of corn

Due to storage and transportation costs, most investors cannot purchase

physical commodities.

Buying the physical commodity

This is an agreement to buy or sell a commodity at a predetermined price at a

specified time in the future

Buying a futures contract on the commodity

Investors wishing to access the commodity market can invest in Commodity

Indices that replicate futures. There are many traded commodity indices.

Investing in a commodity index

S&P GSCITM Commodity Index BCOM Commodity Index

Energy 34%

Industrial Metals

17%

Precious Metals

15%

Agriculture 28%

Livestock 6%

Energy 65%

Industrial Metals

10%

Precious Metals

4%

Agriculture 15%

Livestock 6%

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Commodity index investors will roll their commodity future investment before the contract

could take physical delivery; simply buying the second nearby contract and holding it until it

becomes the first, at which point it will be sold and the next nearby will be bought. As a result;

index investors never partake in the physical underlying market – neither consuming nor

storing the commodities

Commodity Index investments generate returns from:

Commodity price movement

Shape of the forward curve

Contango

when longer-dated prices are higher than

shorter-dated prices (“upward sloping”),

reflects high inventory levels and / or low

demand. Commodity indices suffer a loss

(“negative roll yield”) from selling the existing

contracts at a low price, and buying the new

contracts at a higher price.

Backwardation

when longer-dated prices are lower than

shorter-dated prices (“downward sloping”),

reflects low inventory levels and / or high

demand. Commodity indices generate a

gain (“positive roll yield”) from selling the

existing contracts at a high price, and buying

the new contracts at a low price.

Investing in Commodities Commodity Index Investing: How Returns Are Derived

1. Simplified example, for illustrative purposes only.


Commodity Index Investing

Price

Time to Delivery

Forward

Curve

Second Nearby Contract

First Nearby

Contract

Index investor buys the 2nd nearby contract and holds it until

it becomes the 1st nearby contract. Index investor then sells

the contract and buys the current 2nd nearby contract. This

is called “rolling” the futures position

Rolling Futures in Backwardation¹

The most backwardated contract

potentially gains the most from

rolling up the curve

Price

Futures contracts 1st 2nd Nearby

The contract with the largest

contango potentially suffers the

largest losses when the contracts

roll down the curve

Price

Futures contracts

Rolling Futures in Contango¹

1st 2nd Nearby

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Goldman Sachs Commodity

Enhanced Curve Strategy

Modifying the rolls of the commodity futures

Index Overview

Realized and Backtested Performance

Confidential

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GS Commodity Enhanced Curve Strategy Modifying the roll (1/2)


Modifying the Roll

The Benchmark Roll happens at the same

time of the month and with the same

frequency, independently of whether the

roll yield is positive or negative, hence

not accounting for commodity

fundamentals.

Price

Now Future

Enhanced Roll

Benchmark Roll Enhanced Roll

The Enhanced Roll will choose the time

and frequency of the roll according to the

commodities’ fundamentals in order to

achieve the highest roll yield possible

Price

Now Future

Regular Roll

In some commodities, market participants such as producers need to hedge their production

for the coming year. This puts downward pressure on longer dated prices.

The GS Commodity Enhanced Curve Strategy takes advantage of the shape of the curve by

buying the longer dated contract.

Example: Aluminum, Nickel, Zinc

Static Roll

Regular Roll

Enhanced Roll

Now 1 2 3 4

Consumer

Buying

Product

Selling

Price

Months

1

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Some commodities exhibit seasonality due to the seasonality of supply and demand. The

strategy adjusts when the contracts are rolled in order to capture value from the shape of the

forward curves and higher risk reward associated with low inventory levels.

The GS Commodity Enhanced Curve Strategy will apply a seasonal roll (e.g. Natural Gas will

roll from January to January)

Example: Natural Gas, Heating Oil, Corn, Cotton, Coffee

GS Commodity Enhanced Curve Strategy Modifying the roll (2/2)

1. Simplified example, for illustrative purposes only.

Source: Goldman Sachs Securities Division, as of September, 2019. For illustrative purposes only.

The GS Commodity Enhanced Curve Strategy is designed to go long the shorter (longer)

dated contract when its Roll Yield is expected to be greater than that of the longer (shorter)

dated contract.

Example: WTI and Brent

Dynamic Roll 3

Seasonal Roll 2

Natural Gas Forward Curve Price

Time

Backwardation1 Environment Contango1 Environment

LONG the front end

Greater positive Roll Yield

Price

Expiry Expiry

Price

LONG the back end

Smaller negative Roll Yield

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GS Commodity Enhanced Curve Strategy GS Enhanced Commodity Beta


Example of Modified Rolls for the Goldman Sachs Enhanced Roll Strategy

2

Seasonal Roll:

Heating Oil

1

Static Roll:

Aluminium

3

Dynamic Roll:

Brent

Benchmark Roll

(BCOM Index)

Goldman Sachs

Enhanced Roll

(ENHG266P Index)

In January and February,

BCOM will buy March’s futures

contract;

In March and April, BCOM will

buy May’s futures contract;

in May and June, BCOM will

buy July’s futures contract;

and so on.

In January, GS Index will buy

July’s futures contract;

In February, GS Index will buy

August’s futures contract;

In March, GS Index will buy

September's futures contract;

and so on.



contract;





and so on.

It will always buy December’s

futures contract, which is the

month where the spot price is

the highest, and benefit from

the difference between the

buying and selling price

Before expiry, it will sell

December’s contract of the

current year and will buy the

one of the following year.



contract;





and so on.

If the curve is in Contango, in

January and February GS

Index will buy September’s

futures contract;

If the curve is in Backwardation,

in January and February GS

Index will buy May’s futures

contract;

and so on.

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Confidential

GS Commodity Enhanced Curve Strategy Index Overview

Index Sponsor Goldman Sachs International

Calculation Agent Goldman Sachs International

Index Currency USD

Bloomberg Ticker ABGS1099 Index

Launch Date for the long leg 3 March 2009

History Available Since 17 January 1995

Type Excess Return

GS Commodity Enhanced Curve Strategy

The GS Commodity Enhanced Curve Strategy is a long short strategy which:

buys the Goldman Sachs Commodity Enhanced Curve Long Only Strategy (ENHG266P Index),

which applies static, seasonal and dynamic enhanced rolling futures; and

sells the commodity Benchmark Index (BCOM Index)


Key Considerations

The benchmark

commodity index

Benchmark Index

(BCOM Index)

GS

Commodity

Enhanced

Curve

Strategy

(ABGS1099

Index)

GS Commodity Enhanced

Curve Long Only Strategy

(ENHG266P Index)

The Index applies

static, seasonal and

dynamic modifications

on the rolls of the

futures contracts

Sell

Buy

It is a fully rules-based strategy with the aim at extracting the alpha generated by the Roll

Enhancements of commodity futures while aiming to neutralize the commodities market beta to

minimize directional exposure.

Both ENHG266P and BCOM indices have

a live track record, as the ENHG266P

index is live since March 2009 with

currently over $2bn AUM.

It has historically exhibited:

Positive Returns

Low Volatility

Low correlation to traditional asset

classes

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GS Commodity Enhanced Curve Strategy Realized and Backtested Performance

GS Securities Division as of September 30, 2019. Data ranging from 3Mar09 to 30Sep19. Performance data is backtested. Performance figures

are gross of transaction costs. Backtesting analysis/simulated results are for illustrative purposes only. GS provides no assurance or guarantee

that the strategy will operate or would have operated in the past in a manner consistent with the above backtesting analysis. Backtested

performance Mai use slightly different data sources, approximation and limited differences in methodology to those prescribed in the strategy

disclosure document. Backtested and/or past performance figures are not a reliable indicator of future result


GS Commodity Enhanced Curve Long Short Strategy (ABGS1099 Index)

Since 03-Mar-2009

(03Mar09 – 30Sep19)

Last 5y

(30Sep14 – 30Sep19)

Last 3y

(30Sep16 – 30Sep19)

Last 1y

(30Sep18 – 30Sep19)

Annualized Return 2.2% 2.8% 2.3% 3.8%

Annualized Volatility 2.2% 2.2% 2.0% 2.8%

Sharpe Ratio 1.01 1.31 1.12 1.34

Max Drawdown -3.5% -1.6% -1.6% -1.2%

Worst Month -1.6% -1.0% -0.5% -0.5%

Best Month 4.3% 4.3% 4.3% 4.3%

Realized and Backtested Monthly Returns

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Return Vol Sharpe

2009 0.9% 1.1% -1.1% 0.2% 0.5% 0.5% -0.3% 0.1% 0.7% -0.7% 1.9% 3.1% 0.75

2010 0.7% 0.1% 1.2% 0.4% 0.2% -0.8% -1.2% 1.4% -0.6% 0.2% 0.2% -0.6% 1.0% 2.3% 0.42

2011 0.5% 1.4% -0.1% 0.2% 0.2% 0.6% 0.0% 0.3% 0.3% 0.0% -0.1% 0.6% 3.9% 1.7% 2.28

2012 0.3% 0.2% 1.2% -0.4% 0.9% -1.6% -1.2% 0.7% 0.3% 0.0% 0.4% 0.8% 1.5% 2.3% 0.65

2013 -0.2% -0.1% -0.3% 0.2% 0.1% -0.3% 0.4% 0.1% 0.3% 0.1% 0.0% -0.4% 0.0% 1.5% Neg.

2014 -1.3% 0.1% 0.4% 0.0% 0.3% 0.6% 0.7% 0.3% 0.1% 0.2% 0.7% 1.6% 3.8% 2.4% 1.59

2015 0.2% -0.2% 0.4% -1.0% -0.1% -0.1% 0.8% -0.2% 0.1% 0.4% 0.8% 0.6% 1.8% 2.3% 0.78

2016 0.6% 1.4% 0.3% -0.5% 0.2% 0.0% 0.9% 0.1% 0.2% 0.2% 0.0% -0.5% 2.7% 2.5% 1.08

2017 1.1% 0.4% 0.0% 0.3% 0.0% 0.0% 0.2% 0.1% 0.4% -0.2% 0.4% -0.2% 2.4% 1.4% 1.73

2018 0.2% 0.6% 0.3% -0.5% 0.0% 0.1% 0.4% 0.3% -0.3% 0.0% -0.5% 4.3% 4.8% 2.5% 1.94

2019 0.0% 0.3% 0.0% 0.0% -0.3% 0.0% 0.1% -0.1% -0.1% 0.0% 1.9% Neg.

95

100

105

110

115

120

125

130

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Goldman Sachs Commodity Enhanced Curve Long Short (ABGS1099 Index)

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SECURITIES DIVISION – EMEA

Confidential

Appendix

Confidential

Appendix

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Appendix Market Environment Analysis

Backtested 6m Correlation

Percentile Distribution

US Fixed

Income

Percentile

Distribution

US Equity

Percentile

Distribution

Below is a percentile distribution of 21 business day return of the GS Commodity Enhanced Curve Strategy versus (1) US

Fixed Income; and (2) US Equity. It shows the average 21 business day return within each decile of US Fixed Income and

US Fixed Income.

Goldman Sachs Securities Division, as of September 30, 2019. Data ranging from 3Mar09 to 30Sep19. Correlation is calculated on 5b returns.

Backtesting analysis/simulated results are for illustrative purposes only. GS provides no assurance or guarantee that the strategy will operate or

would have operated in the past in a manner consistent with the above backtesting analysis. Backtested and/or past performance figures are

not a reliable indicator of future results. US Equity: S&P 500 TR (SPXT) is a live index published by S&P Dow Jones Indices. US Fixed Income:

Bloomberg Barclays US Treasury 7-10y (LT09TRUU) is a live index published by Bloomberg. Commodities: Bloomberg Commodity Index

(BCOM) is a live index published by Bloomberg. Hedge Funds: HFRX Global Hedge Fund index (HFRXGL) is a live index published by Hedge

Fund Research, Inc. The indices are made Excess Return by subtracting Fed Funds to make it comparable.

(100)%

(75)%

(50)%

(25)%

0%

25%

50%

75%

100%

09 10 11 12 13 14 15 16 17 18 19

6m correlation vs. US Equity

6m Rolling Correlation Average = -6.6%

+/- 1 Standard Deviation Current = 7.0% (100)%

(75)%

(50)%

(25)%

0%

25%

50%

75%

100%

09 10 11 12 13 14 15 16 17 18 19

6m correlation vs. US Fixed Income

6m Rolling Correlation Average = 5.3%

+/- 1 Standard Deviation Current = 8.3%

(100)%

(75)%

(50)%

(25)%

0%

25%

50%

75%

100%

09 10 11 12 13 14 15 16 17 18 19

6m correlation vs. Commodities


+/- 1 Standard Deviation Current = -47.5%(100)%

(75)%

(50)%

(25)%

0%

25%

50%

75%

100%

09 10 11 12 13 14 15 16 17 18 19

6m correlation vs. Hedge Funds


+/- 1 Standard Deviation Current = 6.2%

90%-100%80%-90%70%-80%60%-70%50%-60%40%-50%30%-40%20%-30%10%-20%0%-10%

-0.5%

-0.4%

-0.3%

-0.2%

-0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

GS

Co

mm

od

ity S

trate

gy

US

Eq

uit

y

Ações dos Estados Unidos


90%-100%80%-90%70%-80%60%-70%50%-60%40%-50%30%-40%20%-30%10%-20%0%-10%

-0.5%

-0.4%

-0.3%

-0.2%

-0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

GS

Co

mm

od

ity S

trate

gy

US

Fix

ed

In

co

me

Renda Fixa dos Estados Unidos


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Appendix Long & Short Legs - Realized and Backtested Performance

GS Securities Division as of September 30, 2019. Data ranging from 17Jan95 to 30Sep19. Performance data is backtested until 3Mar09,

realized thereafter. Performance figures are gross of transaction costs. Backtesting analysis/simulated results are for illustrative purposes only.

GS provides no assurance or guarantee that the strategy will operate or would have operated in the past in a manner consistent with the above

backtesting analysis. Backtested performance Mai use slightly different data sources, approximation and limited differences in methodology to

those prescribed in the strategy disclosure document. Backtested and/or past performance figures are not a reliable indicator of future result


Full Period

(17Jan95 – 30Aug19)

Live Period

(3Mar09 – 30Aug19)

In USD


Curve Long Only

(ENHG266P Index)

Bloomberg

Commodity Index

(BCOM Index)


Curve Long Only

(ENHG266P Index)

Bloomberg

Commodity Index

(BCOM Index)

Annualized Return 3.2% -0.9% -0.3% -2.6%

Annualized Volatility 13.7% 15.2% 13.6% 14.7%

Sharpe Ratio 0.23 -0.06 -0.02 -0.18

Max Drawdown -61.4% -69.4% -53.8% -58.5%

Worst Month -20.4% -21.3% -14.4% -14.7%

Best Month 12.1% 13.0% 11.9% 13.0%

50

100

150

200

250

300

350

400

450

500

550

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Live Period

Goldman Sachs Commodity Enhanced Curve Long Only (ENHG266P Index)

Bloomberg Commodity Index (BCOM Index)

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Appendix Rolling Schedule

Roll out contracts at period begin (exception: Crude oil, see ** note below)

* Denotes expiration in the following year

** Shorter Dated Contract/Longer Dated Contract. Denotes the Roll in contracts.

Source: Goldman Sachs Securities Division, as of September 30, 2019. The table indicates the contract expirations out of which both the

Bloomberg Commodity Index and the Modified Strategy D266 on the Bloomberg Commodity Index rolls during the roll period related to the

indicated month starting with January.

GS Commodity Enhanced Curve Long Only Strategy (ENHG266P Index)

Commodity Lead Future

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Static

Soybean Oil Mar Mar May May Jul Jul Dec Dec Dec Dec Jan* Jan*

Kansas Wheat Mar Mar May May Jul Jul Sep Sep Dec Dec Dec Mar*

Soybean Meal Mar Mar May May Jul Jul Dec Dec Dec Dec Jan* Jan*

Gasoil Mar Mar May May Jul Jul Sep Sep Nov Nov Jan* Jan*

Gasoline Mar Mar May May Jul Jul Sep Sep Nov Nov Jan* Jan*

Copper (COMEX) Mar Mar May May Jul Jul Sep Sep Dec Dec Dec Mar*

Aluminium Jul Aug Sep Oct Nov Dec Jan* Feb* Mar* Apr* May* Jun*

Nickel Jul Aug Sep Oct Nov Dec Jan* Feb* Mar* Apr* May* Jun*

Zinc Jul Aug Sep Oct Nov Dec Jan* Feb* Mar* Apr* May* Jun*

Gold Feb Apr Apr Jun Jun Aug Aug Dec Dec Dec Dec Feb*

Silver Mar Mar May May Jul Jul Sep Sep Dec Dec Dec Mar*

Seasonal

Corn Jul Jul Jul Jul Jul Jul* Jul* Jul* Jul* Jul* Jul* Jul*

Cotton Jul Jul Jul Jul Jul Jul Jul* Jul* Jul* Jul* Jul* Jul*

Coffee May May May May May* May* May* May* May* May* May* May*

Soybeans Jul Jul Jul Jul Jul Jul Jan* Jan* Jan* Jan* Jan* Jan*

Sugar Mar Mar Mar* Mar* Mar* Mar* Mar* Mar* Mar* Mar* Mar* Mar*

Wheat Sep Sep Sep Sep Sep Sep Sep Sep Dec Dec Dec Sep*

Heating Oil Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec*

Natural Gas Jan* Jan* Jan* Jan* Jan* Jan* Jan* Jan* Jan* Jan* Jan* Jan*

Live Cattle Apr Apr Apr Oct Oct Oct Oct Oct Oct Apr* Apr* Apr*

Lean Hogs Apr Apr Apr Aug Aug Aug Aug Apr* Apr* Apr* Apr* Apr*

Dynamic Brent** May/Sep May/Sep Jul/Nov Jul/Nov Sep/Jan* Sep/Jan* Nov/Mar* Nov/Mar* Jan*/May* Jan*/May* Mar*/Jul* Mar*/Jul*

WTI** Mar/Jul May/Sep May/Sep Jul/Nov Jul/Nov Sep/Jan* Sep/Jan* Nov/Mar* Nov/Mar* Jan*/May* Jan*/May* Mar*/Jul*

Benchmark Index (BCOM Index)

Commodity Lead Future

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Soybean Oil Mar Mar May May Jul Jul Dec Dec Dec Dec Jan* Jan*

Kansas Wheat Mar Mar May May Jul Jul Sep Sep Dec Dec Dec Mar*

Soybean Meal Mar Mar May May Jul Jul Dec Dec Dec Dec Jan* Jan*

Gasoil Mar Mar May May Jul Jul Sep Sep Nov Nov Jan* Jan*

Gasoline Mar Mar May May Jul Jul Sep Sep Nov Nov Jan* Jan*

Copper (COMEX) Mar Mar May May Jul Jul Sep Sep Dec Dec Dec Mar*

Aluminium Mar Mar May May Jul Jul Sep Sep Dec Dec Jan* Jan*

Nickel Mar Mar May May Jul Jul Sep Sep Dec Dec Jan* Jan*

Zinc Mar Mar May May Jul Jul Sep Sep Dec Dec Jan* Jan*

Gold Feb Apr Apr Jun Jun Aug Aug Dec Dec Dec Dec Feb*

Silver Mar Mar May May Jul Jul Sep Sep Dec Dec Dec Mar*

Corn Mar Mar May May Jul Jul Sep Sep Dec Dec Dec Mar*

Cotton Mar Mar May May Jul Jul Dec Dec Dec Dec Dec Mar*

Coffee Mar Mar May May Jul Jul Sep Sep Dec Dec Dec Mar*

Soybeans Mar Mar May May Jul Jul Nov Nov Nov Nov Jan* Jan*

Sugar Mar Mar May May Jul Jul Oct Oct Oct Mar* Mar* Mar*

Wheat Mar Mar May May Jul Jul Sep Sep Dec Dec Dec Mar*

Heating Oil Mar Mar May May Jul Jul Sep Sep Nov Nov Jan* Jan*

Natural Gas Mar Mar May May Jul Jul Sep Sep Nov Nov Jan* Jan*

Live Cattle Feb Apr Apr Jun Jun Aug Aug Oct Oct Dec Dec Feb*

Lean Hogs Feb Apr Apr Jun Jun Jul Aug Oct Oct Dec Dec Feb*

Brent Mar May May Jul Jul Sep Sep Nov Nov Jan* Jan* Mar*

WTI Mar Mar May May Jul Jul Sep Sep Nov Nov Jan* Jan*

16

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Appendix

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Disclaimer

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Disclaimer

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