Heartwood Investment Management has bought back into commodities after years of ignoring the sector.
Its investment manager Jade Fu said he had not had any direct exposure to commodities, such as oil or gold, on his multi-asset portfolios for more than two years.
Weaker-than-expected demand, a surge of the supply of some commodities and a strong dollar have dragged down prices across the sector. Ms Fu said these fundamental factors were still present and meant the asset class “remains weak”.
But she said: “We are beginning to see tentative signs of stabilisation across a number of sectors, particularly in energy, and we consider that now is the time to gain an entry point into the asset class.”
Ms Fu said many commodities were trading “at the lower end of their five-year ranges” and the prices had started to attract investors. Large outflows from commodity funds in 2013 and 2014 had begun to reverse this year, she added.
The manager also highlighted the diversification benefits of commodities within a multi-asset portfolio, especially now that the recent correlation with equity and bond prices has started to break down.
Rather than any specific commodity on its own, Heartwood has started to buy into the UBS CMCI Composite Commodity ETF, a fund that tracks the price of various commodities.
Ms Fu said even though she had started to buy back into the asset class, she had “no plans to maintain a full weight in commodities”. Heartwood intends “to remain underweight” compared to its strategic asset allocation.
Ms Fu added: “However, we are in a position to phase back into the asset class should the fundamentals become more supportive.”
