Increasingly, institutional investors are turning to commodities to provide absolute returns, and are employing active strategies to do so, according to a survey of more than 300 attendees at Barclays Capital’s sixth annual US Commodities Investor Conference this week.
Absolute returns are the primary motivation for commodities investors, according to 36% of respondents in the survey, twice as many as those citing portfolio diversification or inflation hedge as an investment driver.
When those surveyed were asked how they plan to invest in commodities over the next 12 months, 43% chose active management, while only 7% expected to use index swaps.
Investors also see strong inflows into commodities continuing in 2011. Roughly 75% of respondents expect inflows of $50 billion or more in 2011, which would match or exceed investment in 2010. And the majority of those surveyed anticipate maintaining (22%) or increasing (69%) commodity exposure over the next three years.
Expectations for investment returns are similarly strong. 60% of those surveyed forecast annual average benchmark commodity returns of 6% to 10% over the next five years, and 28% predict returns of more than 10%. Respondents selected copper (26%), grains (23%) and crude oil (19%) as the sectors they see performing best in 2011.
“The survey results show that institutional investors plan to continue deploying new capital into this asset class and expect healthy returns in 2011 and beyond,” said Kevin Norrish, Managing Director, Barclays Capital commodities research. “The challenge for them is to find the right strategy to achieve those returns, and it is clear that active strategies are increasingly coming into favor.”
The conference also saw the launch of the Barclays Capital Commodities Research Index (BCRI), designed to make Barclays Capital’s award-winning commodities research investable. Analysts assign rankings to individual commodity markets based on fundamentals, which are then applied to Benchmark Portfolio weights to produce a set of overweight/underweight positions. The result is an index reflecting the Barclays Capital commodities research team’s fundamental views by market and sector.
“Via the Barclays Capital Commodities Research Index, clients will be able to invest, for the first time, in a product where returns are driven by the views of our industry-leading research team,” said Philippe J.J. Comer, Head of Commodity Investor Structuring, Americas, for Barclays Capital.
The electronic audience response survey was conducted live during the conference, which brought together Barclays Capital experts in oil, power & natural gas, metals, agriculture and environmental markets with institutional investors including asset managers, banks, endowments, hedge funds, insurance companies and pension funds.
About Barclays Capital
Barclays Capital is the investment banking division of Barclays Bank PLC. With a distinctive business model, Barclays Capital provides large corporate, government and institutional clients with a full spectrum of solutions to their strategic advisory, financing and risk management needs. Barclays Capital has offices around the world, employs 25,000 people and has the global reach, advisory services and distribution power to meet the needs of issuers and investors worldwide.
For further information about Barclays Capital, please visit our website: www.barclayscapital.com.
Contacts:
Seth Martin, 212-412-7565
seth.martin@barclayscapital.com
