Big investors have 'woken up to commodities'

SAIJEL KISHAN

Bloomberg News

December 7, 2007

Pension funds and other money managers plan to increase their investments in commodities over the next three years after energy, metals and agriculture prices rose to records, according to Barclays PLC.

About half of the 150 investors surveyed this week in New York plan to expand the weighting of commodities to more than 10 per cent of their portfolios, compared with 15 per cent of respondents in 2005, Barclays Capital, the investment banking unit of London-based Barclays, said in a statement yesterday.

"The investing world has only just woken up to commodities," said Philippe Comer, who heads Barclays' commodity investor solutions business in the Americas. "In terms of the inflows we have seen, it's only just started."

Commodities are outperforming stocks and bonds this year, luring pension plans, hedge funds and other investors, as rising demand from China, India and other emerging economies strained supplies of oil, wheat and lead.



The Globe and Mail

Investments in funds and products tracking commodity indexes will rise to $150-billion (U.S.) in January from $110-billion this year, Standard & Poor's said Nov. 1. Funds that track such indexes allow investors to replicate the gains and declines in the prices of a selection of commodities without owning them.

Twelve per cent of the respondents said they invested in commodities by using an index, compared with 35 per cent two years ago, according to a Barclays presentation. About 56 per cent use a so-called active strategy compared with 22 per cent in 2005.

An active strategy is when a manager boosts holdings of raw materials in short supply or cuts holdings of plentiful ones.

The UBS Bloomberg Constant Maturity Commodity Index of 26 futures contracts has returned 18 per cent this year, compared with a 4.8-per-cent gain in the Standard & Poor's 500 index of stocks. U.S. Treasuries have returned investors 9.4 per cent, according to Merrill Lynch & Co. indexes.

Growth in demand for raw materials is coming from nations outside the Organization for Economic Co-operation and Development, Mr. Comer said.

"This demand will limit the negative impact of a possible U.S. recession on commodities next year," he said.

Most investors plan to hold their commodity investments for at least three years, while an "increasing" number intend to bolster "short-term" holdings, Barclays said.

Almost two-thirds of the investors surveyed by Barclays expect oil prices to average $100 a barrel in the next five years. That compares with 32 per cent of respondents surveyed in December, 2005, who estimated the price to average more than $60, Barclays said. Crude oil in New York has averaged $71 this year.

Hedge funds, banks and insurance companies were among the investors surveyed by Barclays.

About 45 per cent of the 150 clients surveyed expect agricultural commodities to post the best returns next year, while 19 per cent anticipate precious metals will be the best performer, according to the presentation. Eighteen per cent of the investors forecast energy to outperform.