(Refiles to fix link to performance table in 6th paragraph)
* Top commodity funds up over 7 percent in Q2
* Average actively managed fund up over 2 percent
* Base metals expected to perform well in H2
By Claire Milhench
LONDON, July 10 Commodity funds delivered robust
returns in the second quarter, consolidating their recovery
since the start of the year, with rallies in energy and metals
boosting the top performers in the Lipper Global Commodity
Leading commodity fund managers say base metals should
continue to perform well in the second half of 2014, with
investor sentiment towards China improving, but the upside for
oil is seen as more limited.
Commodities have put in a solid performance so far this
year, although returns eased a little in the second quarter.
The average actively managed fund in the Lipper Global
Commodity sector was up 2.18 percent April-June, with the top
performers achieving plus-7 percent returns.
Some of these funds invest in both commodities futures and
natural resource equities, and so benefited from a rally in
energy and mining stocks as well as a run up in futures prices.
For a table of top performing commodity funds in Q2, see
Of the pure futures funds, one of the highest ranked was the
$472 million Commerzbank Rohstoff Strategie Fond.
This returned 5.42 percent and came eighth in the Lipper
league table, fuelled by chunky exposures to Brent crude oil,
industrial metals, platinum and palladium.
Eugen Weinberg, head of commodity research at Commerzbank,
whose team advises on the fund, said they had been bullish on
commodities since the start of the year, partly because the
consensus was pretty bearish.
"But contrarian thinking on commodities markets often pays
off, especially the overlooked commodities, and it looks as if
too much pessimism was priced in," he said.
Thomas Timmerman, head of asset management IB at
Commerzbank, said the fund had done well because of its large
exposure to the futures market in the second quarter, when it
was 90-95 percent invested.
He said commodity prices had risen by between 5 and 15
percent since the start of 2014, but many investors missed out
as they have tended to focus on equity markets.
"There is definitely something happening in the commodity
market, but the asset class hasn't been on their radar,"
Timmerman said. This could be changing as in the last six weeks
or so, Commerzbank has seen good inflows into its fund, he said.
Of the hybrid funds, the $424 million BlackRock Commodity
Strategies Portfolio performed well, up 4.72 percent.
Catherine Raw, a manager in the fund team,
attributed its outperformance to energy and precious metals
stock picks, as market sentiment improved.
At the end of the quarter the fund had 24 percent in energy
names such as Exxon Mobil, Chevron and Royal Dutch Shell.
Energy was the strongest performing equity sector last
quarter due to a combination of attractive valuations relative
to the rest of the market, increasing confidence in managements'
focus on capital discipline and supply-side disruptions
supporting the oil price, Raw said.
"Mining equities also performed well with gold equities
delivering strong outperformance relative to the gold price,"
Both BlackRock and Commerzbank see good upside potential in
industrial metals, with Commerzbank expecting an emerging market
recovery to accelerate in the second half of 2014, driving base
The fund currently has about 28 percent in base metals and
20 percent in platinum and palladium.
"There is strong momentum behind the industrial metals -
copper, zinc, lead - but also the precious metals with an
industrial character such as platinum and palladium," said
Weinberg. He cautioned that the recovery would be "bumpy" so the
fund retains an overweight to gold, for capital preservation.
Raw agreed that the outlook for base metals had improved as
the expected surpluses that many in the market had predicted had
not materialised. "Copper, zinc and aluminium inventories have
declined suggesting the market has returned to deficit, at least
temporarily," she said.
She added that the Chinese economy remained an area of
uncertainty, but stronger macro data and targeted easing of
liquidity by the government is helping to restore market
confidence, at least in the short term.
"This should be supportive for commodities such as iron ore,
which were weak in the second quarter owing to increasing supply
and weaker than expected Chinese steel demand growth," she said.
Iron ore is a major component of the big miners' cash flow and
earnings, so a recovery in iron ore prices should be positive
for the sector.
By contrast, Weinberg said there was less upside potential
for oil prices as the conflict in Iraq has so far failed to have
any lasting effect on exports or infrastructure.
(Reporting by Claire Milhench; Editing by Ruth Pitchford)