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Commodity funds stage revival as buyers search inflation hedges

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Commodity funds are making a comeback after years out of favour, as institutional buyers search hedges in opposition to stubbornly excessive world inflation.

Investment automobiles tied to uncooked supplies reminiscent of oil and wheat drew in internet inflows of $38.7bn within the 12 months to May 10, constructing on weekly influx highs by way of March, in keeping with information from Citi.

Commodity costs have soared this 12 months as pandemic provide chain disruptions had been compounded by a squeeze on oil and fuel provides over the winter, pushing the broad S&P GSCI index in March to highest degree since 2008.

Prices for grains, cooking oils, power and fertilisers have all jumped following Russia’s invasion of Ukraine, stoking inflation even additional and elevating fears of widespread starvation in growing nations.

The wide-ranging S&P GSCI uncooked supplies index has receded from its March peak, however stays up 37 per cent for the 12 months, in contrast with a fall of 16 per cent for the broad MSCI World share gauge and a decline of 8 per cent for an Ice Data Services barometer monitoring world high-grade bonds.

Agricultural commodity funds have obtained probably the most flows this 12 months, in keeping with portfolio managers at DWS. Data tracked by Morningstar present each broad-based and sector-specific commodity methods have taken in $24.5bn in internet flows this 12 months, with greater than 95 per cent going into index funds monitoring these items.

“We have a pretty diversified portfolio at all times, but we’re definitely leaning a bit more into natural resources and commodities, which is a counter to historically what we have done if we see this kind of global growth slowdown,” mentioned Evan Rudy, liquid actual belongings fund supervisor at DWS.

In an indication of buyers’ flight to security in turbulent markets, the SPDR Gold Shares alternate traded fund was the commodity technique to obtain probably the most inflows, drawing in $7.2bn. Most commodity funds embody gold, which is broadly seen as a short-term hedge in opposition to inflation.

Commodity costs spent the primary 10 years of this century driving excessive on the again of China’s insatiable demand for assets to gas its financial development spurt. After the so-called supercycle ended, commodities had been unpopular for a number of years as buyers frightened about their unstable costs and sometimes dicey sustainability credentials.

Environmental, social and governance rules had been “one of the reasons institutional investors stayed away, but also the volatility is quite extreme. Institutional investors can’t stomach volatility so commodities were very out of favour,” mentioned Amin Rajan, chief government at think-tank Create Research. “They are a feast or famine prospect.”

Additional reporting by Neil Hume

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