Hedge funds cut bets on a commodity rally to a four-year low on signs of surplus supply in everything from coffee to zinc before Goldman Sachs Group Incorporated said prices had fallen too far and investors should buy.
Hedge funds are private, actively managed investment funds that invest in a diverse range of markets, investment instruments, and strategies.
Investors pulled $4.66 billion from commodities this year, according to EPFR Global, which tracks money flows. That compares with an inflow of $5.05 billion a year earlier, the researcher said. Commodity assets under management totalled $430 billion in January, from a record $451 billion in April, data from Barclays show.
“There is a disagreement about the extent of how much demand for commodities will rise based on growth,” said Jack Ablin, who helps oversee about $66 billion of assets as chief investment officer of BMO Private Bank in Chicago.
“Commodities became a victim of their own success as higher prices have created more supplies. People who have been looking for a vehicle that can generate income and keep pace with inflation have invested in equities.”
Commodities retreated 5.1 percent since reaching a four- month high Feb. 13, even as optimism about the global economy drove the MSCI All-Country World Index of equities to a 56-month peak. Supplies will outpace demand for 12 of 18 metals and agriculture goods, according to Barclays Plc and Rabobank International. Goldman raised its three-month outlook for raw materials to “overweight” from “neutral” on March 7, saying accelerating Chinese growth will support prices.
For instance, speculators reduced net-long positions across 18 US futures and options in the week ended March 5, by 9.2 percent to 405,885 contracts, the lowest since March 2009, US, Commodity Futures Trading Commission data had shown. They are the most bearish on copper in four years, and are also betting on declines for coffee, hogs, sugar, soybean oil, wheat and natural gas.