Commodity investors race to adapt on fear of supercycle end

Mon Jul 1, 2013 3:34pm EDT
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By Barani Krishnan

NEW YORK (Reuters) - Investors who have plowed some $400 billion into raw materials markets over the past 10 years are accelerating efforts to change their strategies, if not their allocations, on the growing belief the commodities "supercycle" has come to an end.

While pension funds and other institutional investors have been quick to bail on gold as bullion fell deeper into bear market territory in the second quarter, they have yet to abandon other markets like oil and metals en masse, asset allocation experts and analysts say.

Instead, more and more funds are changing tack, abandoning the passive, buy-and-hold strategies that held sway in the previous decade to embrace a more active approach to picking winners and losers within the commodities sphere.

While the shift toward 'active' investing has been growing for several years, the pressure to adapt is mounting.

The 19-commodity Thomson Reuters-Jefferies CRB index .TRJCRB fell 7 percent in the second quarter and 25 percent from a second-quarter 2011 peak, entering bear market territory.

Among individual commodities, the second quarter was gold's worst on record due to fear the U.S. Federal Reserve will curb stimulus money crucial to bullion prices. Brent oil had its third quarterly loss in a row for the first time in 15 years and copper, its biggest quarterly drop in almost 2 years.

Correlations between raw material markets are also deteriorating amid seismic fundamentals shifts in many markets.

"Removing outright directional risk is important in a market where there are so many unknowns," said commodities portfolio manager Nic Johnson at PIMCO, the world's top bond fund, which also has a $30 billion commodities portfolio.   Continued...

24 karat gold bars are seen at the United States West Point Mint facility in West Point, New York June 5, 2013. REUTERS/Shannon Stapleton