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An air of gloom appears to have descended on commodity markets. Gold, copper and iron ore prices have tumbled sharply from their post-financial crisis highs while returns to investors have proved disappointing.
The S&P GSCI, the most widely followed commodities benchmark, has delivered a -8.9 per cent total return over the two years to June 30.
Amid concerns about a possible slowdown in demand growth in China, the once popular theory that commodity markets would enjoy a “supercycle” of prolonged growth has been declared dead.
But interest among many institutional investors remains healthy, according to leading commodity managers. “We are seeing tremendous interest in commodities from a wide range of investors that want to enlarge their current holdings or to make new allocations,” says Jonathan Berland, managing director at Gresham, a specialist commodities manager with $16bn in assets.
Mr Berland describes predictions of an end to the commodity supercycle as “overdone” as absolute levels of global demand for many commodities have continued to rise.
The recent rise in US bond yields points to an inflection point for interest rates that had implications for all asset markets, says Mr Berland. He adds: “The Fed has not had to sell $1 from its balance sheet and yet bond yields have risen and equities have fallen.”
Ahead of that inflection point for yields, sophisticated investors have been looking at commodities as an asset class that offers better value in a world where both equities and bonds looked expensive, says Mr Berland.
The top 10 commodity managers saw a 8.5 per cent increase in pension fund assets under management to $41.7bn in 2012, according to Towers Watson, a professional services company.
BNP Paribas was a notable gainer after wining a mandate increase from one of Europe’s largest pension funds.
Alasdair MacDonald, head of investment strategy at Towers Watson, says commodities still have an important role to play in portfolio diversification but disappointing returns in recent years have reduced their attraction as an investable asset class.
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