UK pension funds set to ramp up metals exposure amid commodity ‘supercycle’

May 19th, 2021 | By | Category: Commodities

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UK-based pension funds look set to ramp up their exposure to precious and industrial metals on the belief that a commodity ‘supercycle’ is underway.

Hamad Ebrahim, Head of Research at NTree International

Hamad Ebrahim, Head of Research at NTree International.

A supercycle is a decades-long period during which commodities are predicted to trade above their long-term price trend.

According to a survey commissioned by NTree International, a London-based fund marketing and distribution firm specializing in ETFs, over three-quarters (78%) of pension funds are of the opinion that a commodity supercycle is currently underway.

Fifty UK pension funds were surveyed, collectively overseeing $76 billion in assets.

Many expect to go overweight in commodities such as precious and industrial metals over the next 12 months – 64% plan to overweight their allocation to gold, 42% plan to overweight silver, 46% plan to overweight platinum and 46% also plan to overweight palladium.

Base industrial metals are also attracting increased interest with 40% of respondents indicating they will overweight their allocation to nickel while 46% plan to overweight their exposure to copper.

When asked what percentage of their portfolio should be dedicated to precious metals, two-thirds (66%) said between 5-7%, while one in five (18%) indicated between 3-5%. For industrial metals, a quarter (24%) indicated a significant allocation of between 7-9%, another quarter (24%) preferred between 5-7%, while 44% said their exposure should be between 3-5%.

Hamad Ebrahim, Head of Research at NTree International, said: “There has been a great deal of speculation about whether or not we are in a commodities supercycle, but our research certainly seems to suggest that many pension funds believe that already. As a result, they are proactively taking steps to increase their exposure to commodities such as precious and industrial metals which will participate and benefit from long-term economic growth.”

NTree represents the Global Palladium Fund (GPF) which entered Europe’s exchange-traded products market in January with the launch of a series of physically backed metal ETCs.

The ETCs, which are available to trade on London Stock Exchange in US dollars or pound sterling as well as on Xetra in euros, provide exposure to gold, silver, platinum, and palladium.

They are the GPF Physical Gold ETC (GBP: TAUS LN; USD: TGLD LN; EUR: 0IIA GR), GPF Physical Silver ETC (GBP: TAGS LN; USD: TSLV LN; EUR: 0IIB GR), GPF Physical Platinum ETC (GBP: TPTS LN; USD: TPLT LN; EUR: 0IIC GR), and GPF Physical Palladium ETC (GBP: TPDS LN; USD: TPAL LN; EUR: 0IID GR).

Each ETC has the lowest fee amongst comparable products in the European marketplace – the gold product comes with an expense ratio of 0.145%, while the others charge 0.20% – and they are the first to use distributed ledger technology to record physical bar information.

The ETCs are fully physically backed with the underlying metal held in vaults in London and Zurich.

In terms of environmental, social, and governance (ESG) considerations, the ETCs have been endowed with a robust sourcing process. Only metal sourced from producers and suppliers signed up to the UN’s Sustainable Development Goals and other global initiatives in sustainable development and responsible mining will be eligible for inclusion.

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