Managers to rethink commodities

Multi-asset managers are considering increasing their exposure to commodities as global growth indicators point to a positive outlook for the asset class.

Managers cited positive indicators of Chinese economic growth as a key reason for reconsidering commodity holdings.

China’s economic output increased by 7.9 per cent in the fourth quarter of 2012, ending a run of seven consecutive quarters of falling growth.

Justin Onuekwusi, manager of Aviva Investors’ multi-asset funds, said he had reduced exposure to commodities across the portfolios because the asset class’s correlation with equities had increased since 2008.

However, he has recently been reassessing his low exposure to commodity investments.

The manager said: “Commodities are starting to look interesting again. China’s growth slowdown has troughed and appears to be on the up again. Global growth has stabilised and may even be increasing – if the growth trend starts to move upwards we will start to look more at commodities.”

The commodities exposure in Mr Onuekwusi’s five funds varies from 0.4 per cent of the Aviva Investors Multi Asset I fund to 3.4 per cent of the Multi Asset III fund, according to the latest factsheets.

David Hollis, senior portfolio manager on Allianz Global Investors’ four-strong range of RiskMaster funds, said industrial commodities were likely to be “well supported” by Chinese growth through 2013.

“Commodities are going to be underpinned this year by the Chinese recovery, but it is not going to be as strong as 2008 because the government will not put in place as big a stimulus as previously,” Mr Hollis added.

However, the manager warned that longer-term indicators currently showed commodities to be less supported into 2014 and 2015 as some emerging markets start to raise interest rates.

In contrast Caspar Rock, chief investment officer at Architas, said he was maintaining a small position in Pimco’s GIS Commodities Plus fund but not increasing this as he was “not bullish on commodities yet”. He played down the importance of the discount between company valuations and commodity prices, adding that the mining sector was still going through a period of “catharsis”.

Several top mining executives have left their companies in recent months, including Tom Albanese who quit Rio Tinto in January following a $14bn (£9bn) writedown of assets in Canada and Mozambique.

Commodity equity funds had a torrid 2012, with gold-focused funds in particular enduring heavy losses. Evy Hambro’s £2.6bn BlackRock Gold & General fund lost 11.6 per cent last year, ranking in the bottom quartile of the IMA Global sector.

This was far from the worst performance, however, as the more niche £7.7m SF Webb Smaller Companies Gold fund lost 43 per cent in 2012 – the worst performance in the IMA Global sector for the year.

How did commodities perform in 2012?


The gold price gained 6.7 per cent in 2012, finishing the year trading at $1,675 a troy ounce – still nearly $300 below the metal’s 2011 peak. This last high was prompted by investors seeking safe havens from collapsing equity markets, the eurozone and US debt problems. As equity markets recovered in recent months and politicians have sought to stave off the collapse of the eurozone the gold price has fallen back, losing 1.8 per cent in 2013 as at February 12.