Posted inAlternativesFRENELUX

The commodity bull case revisited

Expert Investor’s investment sentiment data suggest more and more fund buyers are seeking to increase their exposure to commodities, with oil and gold being the most obvious targets. Returns from commodities have been wildly divergent however. While the gold price has surged to a two-year high, the crude price has dropped by some 15% since July 1st. 

One of these commodity bulls was Tim Peeters, head of securities portfolios at Portolani in Antwerp, Belgium. Back in February, with the oil price at $30 and the Bloomberg Commodity Index at a record low, he made a compelling case for increasing allocation to commodities. His bet played out even better than expected, at least until oil’s recent setback.

Dim crude, shining gold 

“When oil rose above $45 a barrel, I realised this was going too fast, because it takes more time to restore the balance between supply and demand than markets were thinking back then,” Peeters says. So he rushed to make sure the managers of the funds he had bought into to profit from rising commodity prices had been reducing their exposure again.

Luckily for him, they had in most cases. “One of the funds I invest in, the AzValor Internacional fund [set up in October last year by members of Francisco Parames’s former team at Bestinver], reduced their exposure to materials and energy from 43% to 15% last month.”  

That the commodities complex is currently a double-edged sword is perhaps best characterised by the distinct returns generated by two Blackrock funds over the past year. Its World Gold Fund has made a one-year return in excess of 100% (with all returns generated in the past six months). The Blackrock World Energy Fund, which invests in companies active in the oil and gas sector, posted a return of -5.9% over the same period.

 

Peeters’ guess, however, is that investors who remained on the sidelines during the oil rally earlier this year will get a new chance. “I still think oil will bounce back to $60,” he says. This is also what futures markets say, though they have been constantly adjusting their projections downwards. The graph to the left suggests that it might well take Brent two years to break through the 50-dollar level again. The chance that oil will fall back to the levels seen at the start of the year, on the other hand, looks rather small.

 

Part of the Bonhill Group.