Fund Managers Now Hate Commodities

Interesting data point this morning from the Merrill Lynch fund manager survey showing the extreme hatred for commodities at present (see figure 1).  I’ve always hated the idea of “investing” in commodities so it’s interesting to see these extreme swings in sentiment.  I basically think the chart below should show a negative blue bar across the entire timeframe.

Anyhow, this could be a contrarian sign or it could be the beginning of what I hope is a big change in the way managers view commodities.  I think Wall Street has spent the last 15 years selling the concept that commodities are a good way to diversify your portfolio.  They’re non-correlated inflation hedges and all that.  The reality is that commodities perform horribly over the long-term in real-terms.  They’re not an inflation hedge at all.  And they provide non-correlation alright.  So long as you’re looking for something that has non-correlation with going up.

I won’t regurgitate what I’ve said in the past about commodities so see here if you’re interested in more of my thinking here….




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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  • Steve

    Does this take into account the runup in other (equity for example) prices combined with the epic haircut in commodities prices (particularly gold)?

  • andre h


    what is your view on commodity equities or MLPs. I have had positive bias as they are hard assets, but productive companies.

    eg. Vanguard Natural Resources, an MLP. 8% yield, in 2008 was a $5 stock, now $30. thoughts??;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

  • jswede

    what ‘hard assets’ do you refer to? the storage facilities? pipelines?

    I’d say the yield is in line with the risk.

  • Cowpoke

    Looks like they don’t like much of anything:
    Jeffrey Gundlach

    “I think, actually, rates are going to start falling. I think the place – the one place – that you’re likely to make money in the next several weeks, maybe couple of months is actually, believe it or not, the most hated asset class on the planet: long-term U.S. government bonds.

    That’s what I think is going to be the most successful investment, and what I’m really looking at to reach that conclusion is the fact that there is no inflation anywhere. There’s no sign of inflation.

    Gundlach believes this all comes together to form “a bond market rally that is going to start fairly quickly.”

  • andre h

    oil and gas reserves; fertilizer plants; pipelines generating revenues etc etc etc

  • Rob Jones

    The other time when there was an extreme hatred of commodities (Jan ’09) was actually a pretty good time to invest in precious metals.

    It would be nice to overlay that sentiment chart with a chart of commodity prices.

  • jswede

    admittedly, I do know know this sector in and out, but I was under the impression that investing in MLPs were a claim on cashflows, not assets. Like the toll on a bridge, but not the bridge itself.

  • QH

    Cullen, you should write a post on CTAs and your opinion of them. I’d be quite interested.

  • Anon

    As a finance pro down here in Australia, I’d suggest the commodities mostly in question are industrial commodities – iron ore, coal, copper etc. There’s now clear signs that the Chinese are starting to shift from their investment-driven growth model, which has super-charged the current commodities cycle like never before.

    The vast majority of funds managers I speak with around the world (particularly Australia and UK) are very negative on the outlook for industrial commodities and therefore Australia/AUD.

    Although the relatively extreme negative sentiment could result in a normalising bounce, this time I believe the crowd is right.

  • InvestorX

    My view here:

    CTAs (trend-followers)are great. They are liquid and have a long volatility (gamma) bias / positive skewness in their returns. They are similar to risk parity funds, which Cullen endorses, but could also go short or neutral. Unfortunately 98% of the CTAs out there are poor, so one needs to be very selective. The best CTAs are in Europe. The U.S. CTAs have been behibd the curve.

    There are some other issues with CTAs funds:
    – A big driver has been long positions in bonds for 30 years, which will not be profitable anymore / shorting bonds is tough because of the negative carry (a problem for Risk Parity funds as well)
    – Govt interventions post 2008 have cut the tails, which CTAs capture and reduced volatility, which they need
    – Risk on / off has increased the correlations among assets (although they dropped recently, but could rise again)

    But if the current market status quo unravels with the tapering / end of QE, then CTAs can shine again and protect portfolios from falling risk assets as they did in 2008. Actually it is long overdue. Let’s see if TPTB can / want to kick the can further down the road.

  • jaazee

    Does the global weakness in commodities
    exacerbate the liquidity issues facing China? My understanding is that financing for private (not State controlled?) is secured
    Using inventory as collateral.

    The major Chinese banks mostly finance government controlled entities.

  • Steven Jon Kaplan

    This time the crowd is right? No way. You can be sure that any nearly unanimous consensus about the future price of an asset is certain to be the opposite of what will occur. Many commodities including gold are likely to reach new all-time highs within a surprisingly short period of time.