Many UK pension funds are set to become overweight in commodities over the next 12 months, a new survey has revealed.
The survey of 50 UK pension funds by NTree International found 78% of the funds questioned believe we have entered a commodity super-cycle – defined as a period, possibly lasting decades, where commodities are expected to trade above their long-term price trend.
NTree said 64% of the funds expect to go overweight in their gold allocation while 42% expect to be overweight silver.
In terms of industrial metals, platinum group metals continue to be an area of interest for investors with 46% of pension funds expecting to go overweight in platinum and 46% expecting to increase their allocation to palladium.
Base industrial metals are viewed as being a little less sexy but even here, 40% of funds polled indicated that are looking to increase their nickel weighting and 46% are looking to increase their exposure to copper.
When asked what percentage of their exposure UK institutional pension funds should have to precious metals, 18% said 3-5%, and 66% said between 5-7%. For industrial metals, 44% said their exposure should be 3-5%, 24% said between 5-7% and 24% said 7-9%, NTree revealed.
UK pension funds are also looking to increase their exposure to China – the country, not the crockery – which is one of the world’s biggest consumers of commodities.
The survey indicated 44% of the funds are looking to stock up on Chinese fixed income securities while 48% are in the market for more Chinese equities.
“There has been a great deal of speculation about whether or not we are in a commodities super-cycle, 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,” said Hamad Abrahim, the head of research at NTree.
NTree represents the Global Palladium Fund (GPF), which has four metal exchange-traded commodities (gold, silver, palladium and platinum) listed on the Deutsche Börse and London Stock Exchange.