Allocations by investors to the metals sector is low and has a big potential to grow in coming years as the energy transition takes hold, a London Metal Exchange (LME) event heard on Monday.
Commodities are seen as a hedge against inflation and even though interest rates are being cut, inflation is expected to settle at higher levels than in the past, said Aline Carnizelo, managing partner at Frontier Commodities in Switzerland.
“From the perspective of a pension fund, if you want an inflation-adjusted return, you need a pocket in commodities,” she told the LME Seminar.
“We are only at the beginning of the movement of allocations into commodities.”
Most investors want exposure to the energy transition as many countries seek to cut carbon emissions to net zero by 2050, but most of the current exposure is in equities, said Michael Stewart at Legal & General Investment Management.
“We’re having conversations with our investors that we would not have had three or four years ago about considering energy transition commodities,” he said.
“What we’re seeing is investors who have never followed commodities as a strategic allocation.”
Some investors who already have energy transition equities in their portfolio could benefit from having metals as a hedge for those stocks, Steward added.
The overall investor allocation to commodities in global portfolios is declined in recent years to 1.7%, while the ideal range is 4%-9%, said Jigna Gibb, head of commodity index products at Bloomberg.
“There’s a wide range of investors, from highly sophisticated pension or insurance clients, all the way down to wholesale and mass market clients. The opportunity for the upside in investment in metals is tremendous,” Stewart said.
(By Eric Onstad; Editing by David Evans)
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