On the go: UK pension funds are set to increase their allocations to industrial metals to take advantage of a commodity “super cycle”, defined as a decades-long period during which commodities are predicted to trade above their long-term price trend, according to a new study by NTree International.
The findings show that over the next 12 months, 64 per cent of UK pension funds expect to go overweight in their allocation to gold, while 42 per cent expect to overweight silver.
In terms of industrial metals, platinum group metals continue to be an area of interest for investors, with 46 per cent of pension funds expecting to go overweight in platinum and 46 per cent looking to increase their allocation to palladium.
Furthermore, base industrial metals are also starting to attract increasing interest, with 40 per cent of pension funds expecting to increase their allocation to nickel, while 46 per cent are also planning to overweight their exposure to copper.
The study shows that when asked what percentage of their exposure UK institutional pension funds should have to precious metals, 18 per cent of respondents said 3 to 5 per cent, and 66 per cent stated between 5 and 7 per cent.
For industrial metals, 44 per cent said their exposure should be 3 to 5 per cent, 24 per cent said between 5 and 7 per cent, and a further 24 per cent stated 7 to 9 per cent.
The research reveals that UK pension funds are also likely to increase their exposure to China, a key consumer of commodities and driver of global industrial production, with 44 per cent of respondents planning to increase their exposure to Chinese fixed income and 48 per cent to Chinese equities.
Hamad Ebrahim, head of research at NTree, commented: “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.”
Gareth Anderson, principal at Mercer, said: “Mercer advises that investors should have an allocation to the onshore China A-share market that comprises 5 to 10 per cent of their total equity portfolio.
“This reflects the significant diversification benefits, alpha opportunities, and the fact that onshore China is significantly underrepresented in global indices and most investors’ portfolios.”
