European investors are ramping up their allocations to broad commodity and industrial metal ETPs with nine of the ten best-selling ETPs (excluding ETFs) on the continent so far this year falling within these categories, according to financial research firm Cerulli Associates.
Fabrizio Zumbo, Associate Director, European Asset Management Research, Cerulli.
Cerulli believes these trends point to a subtle change in the use of commodity-linked investments as inflation concerns and speculation about a possible commodities supercycle come to the fore.
Fabrizio Zumbo, Associate Director, European Asset Management Research, Cerulli Associates, said: “Commodities still account for only 2.6% of the assets held in ETFs, although many investors will have access indirectly through their equity-based holdings. Short-term bullishness around an economic recovery in concert with fears of inflation and a multi-decade shift in demand will ensure that commodities remain in the investment headlines.”
Following a survey of European institutional investors, Cerulli notes that private banks have significantly increased their allocations to broad commodity exposures to help hedge against the growing risk of inflation caused by the massive fiscal and monetary stimulus deployed to counter the economic effects of the Covid-19 pandemic.
Additionally, many managers interviewed by Cerulli said that the global shift in favour of sustainability will be bullish for commodities. In particular, the construction of clean energy infrastructure is expected to lead to increased demand for specialty metals such as copper, a major input in power grids and energy storage systems; nickel, a key component of electrification; and lithium, used extensively in new battery technologies.