Funds lukewarm on commodities for 2014 |
Date: Monday, November 25, 2013
Author: Eric Onstad, Reuters
China and slow global growth, but some are targeting platinum group
metals due to supply concerns. Participants at the Reuters Global Investment Outlook Summit were
downbeat on gold, expecting prices to extend losses or at best stagnate since
inflation is an issue only for the long term. Investment has been flowing out of
commodities funds since the global financial crisis reduced demand,
in a reversal of the previous boom years when funds piled into commodities to
capture sizzling growth in emerging
markets, especially
China. "We struggle a bit in the commodities space. It's not because we think
there's significant downside in commodities prices," said Philip Saunders, head
of the global multi-asset investment
business at Investec. "The trouble is the type of growth we're likely to get is not really
commodity-intensive type growth. So we expect a weaker Chinese growth picture
next year, and we think monetary conditions there are tightening." Data on Thursday showed activity in China's vast factory sector grew at
a milder pace in November, bolstering expectations the
economy could lose some of its vigor in the fourth quarter.
China accounts for 40 percent of global copper demand, buys about
two-thirds of global sea-borne iron ore cargoes and is the world's top oil
importer. "Assuming that demand in some emerging areas has seen a loss of
momentum, I don't expect to see commodities on the strong side in the near
future," Pascal Blanque, Amundi's chief investment officer, said. Deutsche Asset & Wealth Management, which manages nearly $1.3 trillion
worldwide, is "in a standstill mode" on commodities, Arnaud de Servigny, CIO of
wealth management, said. "For us, there's always been a little bit of competition between
commodities and emerging
markets ... (next year) we would certainly prefer to play emerging
market equities." He expected to keep the allocation to commodities steady at 2 percent,
after it had been steadily cut from a peak of 6 percent during the commodities
boom. The Thomson Reuters/Core
Commodity CRB index .TRJCRB, consisting of 19 commodities, is down
nearly 7 percent this year, the third year of losses. GOLD SHUNNED, PGMs FAVOURED All the fund managers were either bearish or neutral on gold, which has
shed 26 percent this year after a 12-year bull run during which it had become a
staple in many portfolios as a lucrative hedge against inflation and crises. ING Investment Management, which manages $238 billion, is neutral on
commodities except on gold, on which it is bearish, CIO Hans Stoter said. "We are moving into a more risk-friendly environment with limited risk
aversion, so the reason to own gold as a negative carry asset class doesn't
work." Many investors bought gold on fears that loose monetary policy would
fuel inflation, which has failed to materialize. "One of the key things that's happened in the last year is the
inflation bears have been vanquished, gold collapsed and we don't see that
changing over the next year," Investec's Saunders said. Saunders and several other fund managers, however, are upbeat about
another segment of precious metals - platinum and palladium - due to worries
about supply. Investors are concerned about output in South Africa, which accounts
for about three quarters of global production of platinum, after a wave of
strike action. "The unions are very aggressive in South Africa ... and I can see why
they're aggressive," said Michael Hintze, founder and chief executive of hedge
fund CQS, referring to the tough conditions in deep-level mines. Platinum is the only commodity Hintze is currently trading, using a
risk-reverse strategy of selling call options and buying puts, although it is a
small part of the portfolio. Hintze, whose firm manages around $12 billion and who was one of the
world's top-performing hedge fund managers last year, is also considering
targeting copper next year due to China's continued appetite for the benchmark
industrial metal.