Like a lot of investors, Ben Willis spent much of the last two years closely watching the dramatic drop in commodity prices. Since April 2011 the MSCI Commodity Producers Index, which tracks a number of global commodity companies, fell 22 percent, while metals such as copper, aluminumand
While many people have dumped their materials stocks during the free fall, this Bristol-based investment manager was waiting for the right moment to jump in. "I had to see a catalyst that would turn these stocks around," said Willis, head of research at Whitechurch Securities Ltd.
That moment came late last year when it became clear that China's gross domestic product growth—the country is a major commodity user—wasn't stalling, as many people feared, and may in fact be expanding. In a few weeks he went from having zero exposure to commodity stocks to a 10 percent allocation.
Although Willis may be buying, a lot of other investors are still worried that commodity prices will continue to fall. In 2013 nearly $50 billion flowed out of global commodity funds, a major reversal from the $20 billion that went into these funds a year earlier.
This is the type of sector that contrarian investors love, said James Sutton, a portfolio manager at JPMorgan. "It's contrarian because it's been so hated," he said, and that can be a good thing.
Stocks are much cheaper than they were before the recession, and if you believe that this sector will rebound, as both Willis and Sutton do, the gains could be huge.
In a high-flying market where most sectors have risen in value, commodity investments could be one of the best—and only—contrarian plays of 2014.