Investors are set to increase their exposure to commodities in 2012, according to an annual survey by Barclays Capital, with 56 percent of those surveyed saying they will initiate or ramp up commodity investments over the next three years, compared to 45 percent last year.
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The Barclays commodity investing survey, held since 2005, has a sample size of over 100 institutional investors in Europe and the United States.
“This time last year over one-third of the investors we surveyed were at 75 percent or above of their target allocation to commodities. In our latest survey that figure has fallen to less than a quarter,” Barclays said in the report released Monday.
According to 70 percent of the respondents, the ideal long term average weighting for commodities is six to 10 percent, which is a long way above current norms.
In 2011, investment flows into commodities amounted to $15 billion, compared to an average of $50-60 billion over the previous three years, according to Barclays, as investors reduced their exposure to riskier assets. The majority of respondents expect new investments into commodities to beat last year’s total.
Fifty percent of the respondents believe price trends in commodities will be positive this year, compared to just eight percent who forecast overall prices in the space will fall.
Investors say increased liquidity from major central banks such as the U.S. Federal Reserve and the European Central Bank will be the biggest upside driver of prices this year.
“An extension of the ECB’s long-term refinancing operations, or further quantitative easing measures, are viewed as very positive for the performance of commodity assets,” the bank said.
However, a hard landing in China, the world’s largest consumer of raw materials, is viewed as the biggest risk for the sector, according to the survey.
But Chris Kimber, Managing Director, Wealth Management at Fat Prophets, who has been bullish on commodities for the past two years, told CNBC he does not foresee a sharp slowdown in Chinese growth and expects demand to stay strong.
Winners and Losers
Among specific commodity picks, crude oil received the most votes for the best performer in 2012, while natural gas and grains are expected to be the biggest losers for the year. However, respondents were divided over the prospects for gold and copper .
Sixteen percent of the investors expect the precious metal to be the best performer this year, while 11 percent say it will be the worst performer. Gold was one of the top performing assets in 2011, rising around 10 percent.
For copper, 13 percent of the respondents say it will be the top performer for 2012, while 11 percent believe it will be at the bottom of the table.
“We are still very bullish on gold, have been for a long time, we think (interest) rates are going to stay down in the U.S. until 2014, gold is more likely to see $2,000 before it sees $1,500. Copper is still one of our favorites, there have been some good wins in that space,” Kimber said.
