JEDDAH: Investors remain bullish on commodities with more than half increasing their commodity allocation over the next 12 months, according to Barclays Capital's annual survey of institutional investors. The survey, which was conducted as the Japanese nuclear crisis and Middle East unrest unfolded, revealed that 85 percent of investors expect flows to be at or above last year's levels and almost half are seeking returns of over 10 percent. Kevin Norrish, managing director, Barclays Capital commodities research, said "investors expect to see continued strong demand from emerging markets and they predict another strong year for commodities. In addition, heightened geopolitical concerns, turmoil in the energy markets and rising inflation concerns will continue to cast commodity assets in a favourable light." The survey showed that appetite for increased direct exposure to commodities is still high (75 percent). More than 60 percent of institutional investors are seeking active management strategies over the next 12 months. Martin Woodhams, Head of Commodity Investor Structuring and Institutional Investor Sales at Barclays Capital, said "commodities are now mainstream as an asset class with institutional investors being very knowledgeable. Not surprisingly, they now want to pick and choose between strategies to achieve their returns. This is why active strategies have become so popular." The coming year offers mixed results across commodities, and indicates that investors are concerned with a very different set of risks, particularly around geopolitics, slower growth in China and turmoil in the energy markets. Investors chose crude oil as the commodity which will perform best whilst natural gas was chosen as the worst. The popularity of precious metals appears to be waning. While 2010 was a stellar year for gold, it came nearly bottom of the list in its potential to be a star performer in 2011. "The booming economies of China and India will continue to drive strong demand growth for most commodities over the next 10 years. As a consequence, the price outlook for those commodities where physical supply is struggling to keep up like oil, coal and copper is very good. Geopolitics will also drive volatility in the energy markets and will be a key factor in driving returns in oil.”
