The year-old commodities boom is drawing the attention of some pension and mutual funds that got burned when the last rally fizzled more than five years ago. They want back in.
After seeing the first annual return for raw materials since 2010, managers of long-term wealth in funds and endowments are raising stakes in individual markets or broader gauges like the Bloomberg Commodity Index and Standard & Poor’s GSCI, according to Societe Generale SA and Barclays Plc.
Big investors are motivated by signs the world has finally escaped from the decade of limp economic growth and inflation that followed the global financial crisis more than eight years ago. Raw materials have surged, with oil prices doubling from their lows and zinc up about 90 percent, providing evidence for some that the rally will last longer than gains reversed in 2011.
“People are starting to get confident that this rally is real,” said Ben Ross, a New York-based co-portfolio manager of commodity strategy at Cohen & Steers Capital Management, which oversees $56.5 billion. “Most commodities that we cover have bottomed from a price and from an oversupply situation.”
Below Peak
Leigh Goehring and Adam Rozencwajg, who previously helped manage about $5 billion in assets at Chilton Investment Co., told Bloomberg on Wednesday that they were seeking to raise $1 billion for a new commodities mutual fund, betting that prices have bottomed out after years of declines.
Flows into commodity index funds, popular among large managers in the last bull run, have shown signs of recovery since markets turned positive last year.
Total investments in the Bloomberg and S&P GSCI indexes have risen to a rough estimate of $115 billion from a low of about $60 billion around the start of 2016, though still well below a peak of as much as $300 billion in 2011, said Mark Keenan, head of Asia commodities research at Societe Generale. By comparison, the Bloomberg index is up about 12 percent since the beginning of last year. Long-term funds make up about three-quarters of such investments, Keenan said.
While there are few definitive figures for such flows, Barclays’ estimates show a similar trend of investment in swaps linked to commodity indexes bottoming out in 2015 at $62 billion after a peak of $224 million in 2012. The bank’s most recent calculation, combining Commodity Futures Trading Commission data with feedback from investors, gave a total of $94 billion as of September 2016.
The moves may be larger in the current quarter as portfolios increase the share of assets held in commodities, Keenan said in Singapore. Some “people who have maintained a core 1 percent holding are looking to increase their exposure,” he said.