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Adviser Fund Index

Commodities are set for a tough 2009, according to the Economist Intelligence Unit. In its quarterly report, published earlier this month, the EIU forecasts a 41 per cent fall in its Industrial Raw Materials index this year.

Within the decline, the EIU expects collapsing property markets and consumer demand in OECD countries to drive base metals prices down by 47 per cent, before a modest recovery of 12 per cent in 2010.

Oil prices will remain at subdued levels and the EIU forecasts that Brent crude oil will average just $35 a barrel, despite cuts in production by Opec suppliers. A planned rubber cartel operated by Malaysia, Indonesia and Thailand will be unable to prevent a 44 per cent fall in natural rubber prices. Only fibres’ prices offer potential resilience, it says, as farmers choose to plant grains instead of cotton.

A shift away from commodities was apparent during last November’s AFI rebalancing. Panellists ejected CF Eclectica agriculture and First State global resources in response to worsening economic data and falling prices. But despite caution from the EIU and advisers, commentators with a longer-term view remain upbeat on the asset class.

Boudewijn de Haan, manager of Robeco’s agribusiness equities fund, says he expects a slow recovery in soft commodities despite lower levels of speculative investment. De Haan points to structural factors as supportive for the sector, including the growing global population, rising meat consumption and the increasing use of biofuels.

Francisco Blanch, the managing director and global head of commodities research at Banc of America Securities-Merrill Lynch, also offered grounds for long-term optimism on crude oil, in the Financial Times on February 10 (Credit crunch will exacerbate the commodity super-cycle). Blanch expects falling investment in marginal energy projects, such as extracting oil from tar sands, to bolster prices.

Evidence that investors are returning to commodities is building. According to ETF Securities, assets under management in its exchange-traded commodities funds grew from $3.2bn (£2.2bn) in mid-November to $8.7bn earlier this month. The largest inflows at the start of February were into its gold fund, but the firm also reports a sharp pick-up in demand for soft commodities. ETFS agriculture and ETFS wheat are achieving significant inflows, it says.

Shauna Bevan, investment manager at Charles Stanley and an AFI panellist, says the EIU report is overly pessimistic, and she expects infrastructure spending to boost demand for commodities, as governments implement stimulus programmes. Bevan uses the BlackRock gold & general, BlackRock world mining, JPM natural resources and Schroder alternative solutions agriculture funds. “As long as we do not enter a depression, the world will continue to go round and demand will come back,” she says.

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