Investors are rushing to recalibrate their portfolios for a potentially extended period of elevated commodity prices, as Russia’s invasion of Ukraine sparks eye-popping moves in raw materials that threaten to exacerbate inflation and hurt growth.
Wild moves have been the norm in commodities over the last few weeks, as the war in Ukraine and subsequent sanctions on Russia helped lift oil prices to 14-year highs and natural gas prices near records.
Prices for wheat and copper stand near all-time highs, while a doubling of the price of nickel earlier this week forced the London Metals Exchange to halt trading in the metal.
With the US economy already feeling the stress of a broad, post-Covid 19 boost in demand and a quick resolution to the West’s standoff with Russia in doubt, some investors are betting high commodity prices are likely to remain for the foreseeable future.
Investors have sent $10.5 billion into commodities-focused ETFs and mutual funds since the start of the year, including a $2.8 billion gain in the week that ended March 2 that was the largest one-week positive inflow since July 2020, according to ICI data.
“This is a very unique environment that we’re in because you have both demand shocks and supply shocks to the system at the same time,” said Eric Marshall, a portfolio manager at Hodges Capital.
Marshall believes demand for commodities is likely to remain strong even if geopolitical tensions ebb, fueled by factors like electric car battery production, which requires metals such as copper and nickel. A $1 trillion US infrastructure bill passed in November is increasing demand for steel, cement and other commodities, he said.
He is increasing his stake in steel producer Cleveland Cliffs and agricultural companies Tyson Foods and Archer Daniels Midland, while cutting positions in consumer companies most likely to feel the brunt of higher gas and materials costs.
Published in The Express Tribune, March 13th, 2022.
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