Moves by some institutional investors to offer commodities as a separate asset class may have been misguided, according to David McDonald, senior research analyst at Allianz Global Investors’ (Allianz GI) subsidiary RCM.
While commodity stocks should have been introduced under existing international and domestic equity asset classes, some institutional investors added the option in order to be seen as offering a further alternative where one didn’t necessarily exist, argued McDonald, speaking at a Sydney media briefing yesterday.
“I don’t have a problem with commodities being an asset class, it just worries me that the reason people have been putting money into them is just because commodities have been going up.
“It doesn’t offer them a yield, it doesn’t have a coupon like a government bond or a dividend like normal equities,” he said.
Andrew Hunt, global economic adviser to Allianz GI, echoed this view: “It’s a bit difficult to understand why there wasn’t a commodity class five years ago and then suddenly everybody’s got a commodity class.”
According to Hunt, investors only began looking at commodities when they thought the price of everything else had started to become prohibitive.
“Many of the world’s largest financial institutions had simply run out of assets to invest in with any valuation that made any sense. Commodities … then became more attractive,” he said.
McDonald and Hunt said commodities became particularly attractive because of their strong growth in recent years.
But Allianz GI and RCM’s Australian equities team believes that demand for commodities will slow as volatility returns to global interest rates and currencies, and that current prices are being inflated by speculators.
“Cost pressures in mining are impacting earnings,” McDonald said, explaining his view that burgeoning investment in new mining projects combined with slowing global demand means recent record high metal prices are unsustainable.
