London: The tide is slowly turning for commodities complex with increasing interest and inflows in the Schroders’ $2 billion strong fund on better economic indicators even as the asset manager sees Brent crude prices at $70-75 per barrel next year, an official said on Thursday.
The commodities fund saw positive inflows into its funds in 2016 and in 2017 against neutral flows in 2015, in an asset class that has been on a downturn, Jim Luke, fund manager commodities at Schroders told Gulf News on the sidelines of the International Media Conference.
“Commodities have been out of favour asset class. That being said having had once decent year 2016, and broadly solid this year combined with better economic conditions has been turning people’s attention toward commodities amid fears with equity valuations and what’s happening in fixed income market,” Luke said.
The asset class may also act as a diversification against expectations of a correction in equities or fixed income, Luke said.
“The key message to all investors is that few have any proper inflation protection in their portfolios, and with the improved market outlook set out above, it is time to reassess exposure to such asset classes as commodities,” Luke said.
Brent prices may see an upside of another $10 per barrel from current level of $61. Prices jumped to more than $60 after consolidation in a tight range of $50-55 on expectations of Opec and non-Opec countries extending their supply cut agreement beyond March 2018, which is expected to play into rebalancing the supply demand fundamentals.
“We are not surprised where the prices are. The fund has been much more aggressively positioned since June July this year and that was primarily based on much better demand indicators, “Luke said. “If the global economic growth remains robust then we don’t see any reason for the current oil prices to impact the demand.”
The International Energy Agency and the Opec has had opposite views on demand outlook for oil. IEA lowered its 2018 demand growth estimate by almost 200,000 barrels per day, Opec on the other hand has a positive outlook.
“For oil, and energy in general, the outlook has already improved markedly, and perhaps more importantly the key risks for the oil price now appear skewed heavily to the upside. On the supply side, production continues to underperform expectations in a number of countries — for the first time in a number of years — while on the demand side, global consumption is impressively strong,” Luke said.
Opec and non-Opec members are expected to meet later in the month to decide on the possible extension of 1.8 million barrels per day of supply cut beyond arch 2018.
Schroders expect gold prices to be in between $1,300 and $1,500 an ounce.
“Gold’s and silver’s track record as liquid and transferable tangible assets that have consistently proved to work as a currency of last resort, means they will continue to be a valuable long-term choice for investors in 2018,” Luke said.
International spot gold traded at $1,278.52 an ounce, and has been trading in a very tight range, with volatility in the last 28 days, lowest in seven years.
