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Doubts cripple commodity story

The November rebalancing shows advisers continuing to remain cautious, moving out of emerging markets and reducing commodities, property and high-yield allocation.

Among the funds ejected from the Adviser Fund Index portfolios, commodity plays such as CF Eclectica Agriculture and First State Global Resources have fallen from favour as global commodity prices slide on a weaker economic outlook. Property also suffered as an asset class with the advisers’ axe falling on Premier Pan European Property and New Star UK Property.

Jonathan Wallis, head of retail fund research at Allenbridge Group, notes the property sector does not currently present a compelling investment opportunity and he is cautious on natural resources.

“We’ve dropped property funds for the time being, which we had held in Balanced and Cautious, and replaced them with a global bond fund. We did have exposure to JPM Natural Resources but we replaced it with a more general fund.”

Some of Wallis’ fellow panellists, however, remain more bullish on the medium to long-term prospects of commodities.

“Confidence in commodities and agriculture has waned, but I think you’d struggle to find anyone who disagrees to any large extent that the long-term story is still in place,” says Justine Fearns, research manager at AWD Chase de Vere.

The price of crude fell as low as $60 a barrel as the collapse in the commodity inversely mirrored its meteoric rise earlier in the year which saw it reach a high of $147 a barrel. The sharp drop, coupled with the prospect of recession in a number of the world’s largest economies, has allowed doubt to creep into the commodities story. Despite this, Fearns remains confident that once the hot money leaves the sector commodities will cont- inue their upward trajectory.

“The cooling-off of prices is the result of speculative, performance-chasing money leaving the market, which should leave commodities and agriculture in better shape and more responsive to supply and demand.

“However, the outlook is uncertain and dependent on the bigger picture of the global financial crisis.”

As well as the ejected funds, there were some notable add- itions, the most popular being Tim Russell’s Cazenove UK Absolute Target.

Wallis says that although many IFAs see Russell’s fund as a means of diversifying away from the Mark Lyttleton and Nick Osborne-run BlackRock UK Absolute Alpha, he is willing to wait for it to build up a track record.

Fearns agrees with Wallis and says it is conceivable that the Cazenove fund could challenge Lyttleton and Osborne’s domination of the absolute return sector.

“The Cazenove fund aims to be more market-neutral than BlackRock’s UK Absolute Alpha and therefore even less volatile. To date, the performance figures have shown this to be the case but they are very short-term numbers.”


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