GSAM Survey Shows Commodities Appear Less Risky

(November 18, 2010) — Research recently released by Goldman Sachs Asset Management (GSAM) shows that commodities are looking less risky following the credit crunch.

“Commodities may provide downside protection during periods of economic or political shock, as tangible goods with pragmatic usage become more appealing,” Brad Yim, portfolio manager, asset allocation and commodities at peer Castlestone Management, told Global Pensions. “Commodities have the rare characteristic as being an investment vehicle as well as an insurance.”

According to the poll by the Economist Intelligence Unit for GSAM, about 56% of trustees and chief investment officers and 73% of consultants feel the risk of investing in commodities has not altered or is lower than it was two years ago, compared with 44% of trustees who feel the risks are slightly, or much greater now. Trustees and CIOs, on the other hand, were evenly split (37% each way) on whether or not investing in stocks, usually their largest allocation, is riskier than it used to be. “The financial crisis and the ensuing volatility in the global economy and capital markets have challenged traditional wisdom about the risks associated with investing,” the report stated. “More than ever, there is now a pressing need for investors to have a clear idea of the risks they are taking, as that can influence the amounts invested, the asset classes targeted and the specific products selected.”

Despite the increased confidence in commodities as an asset class, equities, bonds, property, private equity, and hedge funds are still perceived as riskier than they once were. As a result, many of the 289 European and UK institutional and retail investors the Economist Intelligence Unit polled said they de-risked their allocations during the crunch.

Heightened confidence in commodities by institutional investors is reflected in the Caisse de Depot et Placement du Quebec, Canada’s biggest pension fund manager, aiming to increase investments in energy and minerals. According to Bloomberg, Chief Executive Officer Michael Sabia said investment in natural resources would position the fund to benefit from an unexpected commodities boom. More than half of the pension fund manager’s US-listed stock holdings are in energy and materials, Sabia told Bloomberg News in an interview. “Natural resources, energy, those are areas where we think there’s an opportunity to play offense because of what the structural trends are and what our capabilities are,” he said.

The Caisse oversees about $132 billion in assets including stakes in Quebec gas distributor Gaz Métro LP and Suncor Energy Inc., the country’s biggest oil company. An August 11 regulatory filing revealed more than half of the Caisse’s US-listed stock holdings of $11.3 billion consisted of shares in energy and materials.