Last Updated : 18 December 2008 at 22:00 IST
Boost returns in 2009, invest in Energy!
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It is now taken for granted that commodities are sustaining itself even as returns from equity are falling. But which could be the sector that will provide the highest returns to institutional investors in 2009?
According to Barclays Capital survey, it is energy. Agriculture and industrial metals are the next best investment options in the commodities market. Along with the expected high returns in energy, more than 80% of respondents in the survey expected the price of oil to average $75/barrel or more over the next five years.
Institutional investors are worried about the slow growth in emerging markets, the survey revealed.
"Despite the volatile markets and falling commodity prices of recent months, institutional investors are committed to increasing the sophistication of their commodity investment strategies,” said Joe Gold, Co-Head of Commodities at Barclays Capital. “Our clients still value the diversification that commodities provide relative to other assets, while also seeing the potential for alpha generation that comes with a more advanced strategy.”
Approximately half of all respondents indicated that 5% or more of their portfolio is in commodities today, while fully three-quarters expect to invest above the 5% level over the next three years.
Institutional investors are employing a greater range of sophisticated strategies in their commodities investments, Barclays Capital Said.
Meanwhile, Barclays Capital in its quarterly research publication, "Global Outlook: Positioning for an Uncertain Recovery, said that despite recession the risk/reward trade-off is f has begun to look attractive in select areas, particularly for some credit assets.
Major themes of Barclays Capital’s Economic and Financial Market Outlook include:
--The global economic contraction will find a bottom around mid-year 2009, but the recovery will be well below par. Barclays Capital is not expecting sustained deflation. Opportunities exist in US investment grade credit, where there are large risk and liquidity premiums.
--Equities in major markets do not appear as cheap as credit instruments, but Barclays Capital favours modest positions in Europe over the US.
--Underweighting recommended for both equity and non-investment grade credit in emerging markets.
--OPEC production cuts may soon lend support to oil prices, but similar supply management is not expected to benefit other commodities in the near term.
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