June end for US QE puts brakes on commodity market

Fund managers remain cautious on commodities in anticipation of the end of quantitative easing in the US and volatility seen in the sector over the past week.

In April, US Federal Reserve chairman Ben Bernanke signalled QE will end in June.

Last Thursday, Brent crude oil prices plunged by 8.6 per cent to $110 a barrel and silver fell by 12.9 per cent to below $35 per troy ounce. Prices recovered slightly on Friday and Monday.

Premier fund manager Chris White, who runs three equity income funds with total assets of £575m, says: “The end of quantitative easing will make the market question the sustainability of US growth and some of the speculative money will come out of commodities.”

Schroders income fund manager Nick Kirrage says his cautious approach to commodities has been backed up by the recent volatility. He says: “We are cautious about buying shares that assume these high commodities prices will be maintained. We would rather buy companies where bad news is baked in.”

Premier fund manager Simon King, who runs the £61m UK thematic fund and £20.6m smaller companies fund, says: “Demand destruction has been occurring in commodities and the market is anticipating the end of QE. I see a 10 per cent move down across the board in commodities.”