Commodities make a comeback

Sarasin & Partners argues that commodities deserve a broader portfolio role because higher and more volatile inflation and global fragmentation are creating a more supportive regime than the 2009–2020 period.

• The Bloomberg Commodity Index comprises 36.1% energy, 34.9% agriculture and livestock, 14% industrial metals and 15% precious metals.
• Commodities have historically outperformed cash, bonds and a 60/40 portfolio since 1960, although their volatility-adjusted returns lag equities and bonds and their drawdowns can be severe.
• Commodities outperformed a 60/40 portfolio in every inflation shock studied over the past 60 years, although such episodes represented less than a quarter of the period examined.
• Sarasin is retaining its conviction in gold while adding broad commodities and industrial metals; it expects copper demand from power grids, electric vehicles, renewables and AI infrastructure to modestly exceed supply over the next decade.
• The commodities allocation within alternatives has risen from 20% to 25%, funded from alternative equity, while the firm selected JSS Commodity – Transition Enhanced and Neuberger Berman Commodities after screening more than 350 funds.

Takeaway: The firm sees commodities as insurance against unexpected inflation and stagflation, with broad commodities and gold carrying higher conviction than industrial metals; a return to low-growth, low-inflation conditions or a better-balanced copper market would undermine the thesis.