Commodities return to favour as inflation looms

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With global inflation set to rise commodities are enjoying renewed appeal both the retail and institutional markets, according to UBS Asset Management.

Their role as a natural inflation hedge have seen commodities come back into favour over the past six months, with the group’s flagship exchange-traded fund receiving $224m of new assets year to date, bringing the strategy to $1bn in size.

Launched in March 2015, the UBS (IE) ETF CMCI Composite SF Ucits ETF delivered a 16 per cent return in 2016.

The enhanced beta product seeks to replicate the returns of the UBS Bloomberg CMCI Composite TR index, a unique benchmark providing exposure to a basket of more than 25 commodities.

With broad sector and maturity exposure, the fund uses a constant maturity rolling process, designed to help mitigate the effects of negative roll yield.

It invests across energy, precious metals, industrial metals, agriculture, and livestock as well as having maturity diversification, with contracts ranging from three months to three years.

The index weightings are designed to reflect the economic significance and market liquidity of each commodity.

The ETF is available in both dollar and currency-hedged shares classes, in euro, sterling and Swiss franc.

Global head of investment specialists passive and ETFs Clemens Reuter says: “There is definitely growing interest from investors in increasing exposure to commodities for their asset allocation strategies and portfolios.

“In particular, we are seeing demand from European pension funds, alongside asset managers, who have invested extensively in the product. We expect to see more pension fund consultants recommending the CMCI ETF to their end clients.”