Institutional investors are turning to commodities to provide absolute returns and are employing active strategies to do so, according to a survey of more than 300 attendees at Barclays Capital’s sixth annual US Commodities Investor Conference this week.
Absolute returns are the primary motivation for commodities investors, according to 36 per cent of respondents in the survey, twice as many as those citing portfolio diversification or inflation hedge as an investment driver.
When those surveyed were asked how they plan to invest in commodities over the next 12 months, 43 per cent chose active management, while only seven per cent expected to use index swaps.
Investors also see strong inflows into commodities continuing in 2011. Roughly 75 per cent of respondents expect inflows of USD50bn or more in 2011, which would match or exceed investment in 2010. And the majority of those surveyed anticipate maintaining (22 per cent) or increasing (69 per cent) commodity exposure over the next three years.
Expectations for investment returns are similarly strong. Sixty per cent of those surveyed forecast annual average benchmark commodity returns of six per cent to ten per cent over the next five years, and 28 per cent predict returns of more than ten per cent. Respondents selected copper (26 per cent), grains (23 per cent) and crude oil (19 per cent) as the sectors they see performing best in 2011.
“The survey results show that institutional investors plan to continue deploying new capital into this asset class and expect healthy returns in 2011 and beyond,” says Kevin Norrish, managing director, Barclays Capital commodities research. “The challenge for them is to find the right strategy to achieve those returns, and it is clear that active strategies are increasingly coming into favour.”
The conference also saw the launch of the Barclays Capital Commodities Research Index, designed to make Barclays Capital’s commodities research investable. Analysts assign rankings to individual commodity markets based on fundamentals, which are then applied to benchmark portfolio weights to produce a set of overweight/underweight positions.
“Via the Barclays Capital Commodities Research Index, clients will be able to invest, for the first time, in a product where returns are driven by the views of our industry-leading research team,” says Philippe J.J. Comer, head of commodity investor structuring, Americas for Barclays Capital.
