Institutional investors have not lost their taste for commodities, according to Barclays Capital. While this year saw record commodity investment, new heights could be reached in 2010, the firm said last Thursday.
Barclays just finished a survey of more than 300 attendees at its fifth annual U.S. Commodities Investor Conference last week. Underscoring the record $60 billion invested in commodities in 2009 as estimated by Barclays research, nearly 60% of survey respondents indicated that they increased their commodity exposure over the past 12 months, the firm said.
The prospect of heightened regulation was found to not be a deterrent to greater commodities investment, the firm said. However, survey respondents did indicate a cooling toward long-only index investments, such as represented by the former strategy of the United States Natural Gas Fund (see NGI, Oct. 12).
Despite sizable inflows into commodities this year, 63% of those surveyed indicated that they plan to increase their commodity exposure over the next three years. And 57% of respondents expect the level of commodity inflows in 2010 to be $60 billion or more.
"This strong affirmation of greater portfolio allocation to commodities comes even with investors' tempered views on economic growth and benchmark commodity returns; 61% of respondents expect global GDP [gross domestic product] growth to be 3% or less in 2010," the firm said. "And three-quarters of those surveyed expect benchmark commodity returns to average 10% or less over the next five years."
While portfolio diversification still drives commodities allocation for many investors, 60% of respondents selected absolute returns as their motivation for commodity investment, more than double the previous year, Barclays said.
"As our clients add to their commodities allocations and seek favorable absolute returns, the need to be astute in selecting investments is essential," said Joe Gold, co-head of commodities at Barclays.
When asked how they will be investing in commodities over the next year, 40% of respondents looked to third-party active management. Structured commodity products and long-short index strategies showed the largest gains in interest compared to last year, while interest has declined in long-only index investments, the firm said.
Asked of their greatest current concern when investing in commodities, the largest portion of respondents chose a deterioration in fundamentals, while a significantly smaller portion chose the impact of regulation. Thus, while proposed regulatory changes are being closely watched by institutional investors, survey results indicate that they are unlikely to deter the overall trend of increased allocation to commodities, Barclays said.
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