Investors are investing too much into the commodities sector because of the lack of an alternative, when they should be lowering their exposure instead, according to Platypus Asset Management chief investment officer Don Williams.
If investors have been long over the last five years, they should be selling half of their position, Williams said.
The lack of alternative investments was driving people to increase their exposure to commodities, Williams said.
“You’re not going to get a great return out of owning a 10-year bond, yielding 3 per cent, and commodities are inversely correlated to the US dollar so it gives you a hedge,” he said.
“It seems to me that over the last four or five years, more and more professional investors are investing in commodities as an asset class, and in our view, most of them are at or around their likely ceiling,” he said.
There isn’t a lot of upside in commodities over the next five years, except for energy stocks; and with the possible exception of nickel, most of the base metals won’t be able to stay up around current prices, Williams said.
Supply response to demand was also a lot faster and would come down over the next year, he added.
