* Some see upswing running out of steam as China slows
* Tug of war in oil with Iran, strategic reserve release
* Precious metals still sought as QE3 seen back on the cards
By Claire Milhench
LONDON, April 11 Commodity managers who
performed well in the first quarter with tilts to oil and
industrial metals remain bullish going into the second quarter
but are prepared for rapid repositioning given the uncertainty
around China, Iran and strategic oil reserves.
Strong U.S. and Chinese economic data at the start of 2012
encouraged some managers to increase their exposure to
growth-sensitive commodities, but indicators have been more
mixed in April. Managers are also wrestling with how best to
position themselves given tensions with Iran over its nuclear
"An escalation of the situation in Iran would temporarily
bring the crude oil price to very high levels but then again eat
into the global recovery," said Mikael Simonsen, chief
investment officer at ICECapital Asset Management. This would
hit both industrial metals and energy prices.
The ICECapital Commodity fund rose by almost 10
percent in the first quarter, according to Lipper data, having
benefited from an overweight to Brent crude oil futures
and an underweight in U.S. crude oil futures.
"This position was clearly geopolitically defensive but
still growth positive," said Simonsen, adding that a positive
view on gasoline also contributed to the outperformance.
"In general we wanted to position ourselves to reflect
improving global GDP expectations after the dire sentiment in
The average actively managed fund in the Lipper Global
commodity sector was up 2.3 percent in the first quarter as
commodities benefited from an overall increase in risk appetite,
but choppy markets created problems for some managers.
It was a rebound in cyclical commodities that helped the
most bullish managers outperform their peers, with energy-tilted
funds filling out the top of the Lipper league table.
Brent crude futures rose 13.4 percent in the first quarter
as tensions with Iran escalated and markets fretted about supply
disruptions. Meanwhile, New York gasoline RBOB futures
were up 27 percent after a series of refinery closures on the
U.S. East Coast raised expectations of shortages.
But managers faced a dilemma going into the second quarter
as they weighed competing factors that could push the oil price
higher or lower, requiring some nifty footwork if they are not
to be caught out.
Benjamin Louvet, manager of the Prim Commodities fund
, which was up 7 percent, said he was underweighting
the oil sector for the moment after being long gasoil in the
He takes the view that a strategic oil reserves release is
likely in the coming weeks. "After this announcement, we will
probably raise our allocation to petroleum products," he said.
Managers also have to keep an eye on Iranian developments.
Simonsen said he was continuing to overweight crude and the
short-dated Brent contract in particular.
"It is difficult to assess probabilities for an Iran
scenario, so we would be reactive rather than proactive there."
This would mean cutting the Brent weighting after a potential
spike, conditional on a conflict, he said.
Meanwhile, the mixed data coming out of China, the world's
biggest buyer of many key industrial metals, has taken some of
the bullish sentiment out of the market.
Louvet's fund benefited from an overweight to copper in the
first quarter, and he has retained this going into April,
coupled with an overweight to aluminium. However, he is globally
underweight base metals, saying supply factors are not
Simonsen expects stimulative measures to be taken by the
Chinese government, with an easing of the required reserve ratio
allowing banks to lend more. "This would bring fresh air under
the wings of industrial metals in particular," he said.
However, he is ready to reduce the fund's market directional
risk "materially", as he described it, if he sees hints Chinese
growth is close to or lower than the indicated 7.5 percent.
On the whole, managers remain fairly bullish, with Scott
Wolle, lead manager of the Invesco Balanced-Risk Commodity
Strategy Fund, saying that commodities still have
room to appreciate in the second quarter.
His fund returned 10.33 percent, boosted by strategic
overweights to crude oil and copper.
"Over the intermediate term, fundamentals look quite good
and multiple risk factors - geopolitical risks, weather, and
generally loose monetary policy - still tend to favour the asset
class," he said.
Simonsen also noted that a third round of quantitative
easing by the U.S. Federal Reserve would be good for commodities
and the precious metals sector in particular.
This option is in the spotlight again following a
disappointing U.S. jobs report last Friday, which has raised
doubts about the U.S. recovery.
Once again it was the more systematic-type funds such as
Peak Capital Real Assets and the Forward Commodity
Long/Short Strategy Fund that found the quarter
difficult as choppy markets prevented trend-following and
momentum models from performing at their best.
(Reporting by Claire Milhench, editing by Jane Baird)