Mr. Filip is Head of Investments at SYZ Private Banking in Switzerland, and his big concern is that inflation is eating into the $ 28.5 billion in client investments he manages. So he bought oil.
Fund managers like Mr. Filip are contributing to a recovery that has pushed oil prices to their highest level since the energy crisis of 2014. While energy futures markets are more generally the responsibility of producers and investors. Commodity-focused hedge funds, an oil recovery that shows no signs of slowing down is now influencing traditional fund managers who manage portfolios of stocks and bonds.
Because commodity prices tend to rise along with inflation, they can protect investment portfolios from its erosive effects. When combined with other commodities like copper and gold, energy is “a pretty decent hedge,” said Mr. Filip, who bought energy futures and sold energy. longer-term bonds that will lose value if inflation turns out to be high for longer than expected.
Granted, inflation fears are not the main driver of the West Texas benchmark’s run from $ 62 a barrel in August to $ 85 this week. The Organization of the Petroleum Exporting Countries has maintained its plan to increase production in small increments. A shortage of natural gas has prompted some industrial manufacturers to switch to diesel, which is refined from petroleum.
Unraveling these entries is difficult. But traders and analysts say some of the recent oil gains could be explained by inflation concerns, especially days with no supply news that could boost trade by regular players such as commodity brokers. and oil producers.
As a sign of investor interest, money poured into funds that buy energy futures and stocks, accelerating just as inflation fears took center stage this fall. Those funds have seen four consecutive weeks of influx for the first time since spring, with $ 753 million last week, the highest weekly total in five months, according to data provider EPFR.
Data from the Commodity Futures Trading Commission showed an increase in speculative purchases of crude oil futures and options in the week leading up to October 19. Bets on $ 100 a barrel oil – a price last seen seven years ago – surged earlier this summer. This month, investors bet $ 200.
These investors, especially those new to or buying for ancillary reasons such as inflation fears, take the risk that a sudden shock will push oil prices down. This happened in the spring of 2020, when demand collapsed due to the Covid-19 pandemic just as Saudi Arabia was ramping up production.
In addition, energy is a major contributor to the Consumer Price Index, the broadest measure of inflation. This means that investing in energy as a hedge against rising prices can be a self-reinforcing cycle: as oil prices rise, inflation also rises, which fires fund managers like Mr. Filip. on the energy market to strengthen their protection.
“People buy oil, it spurs inflation expectations and it can feed itself,” said Evan Brown, head of asset allocation at UBS Asset Management.
Inflation has gone from an expected and natural consequence of economies emerging from blockages to a major source of investor anxiety. Rising prices are eating away at yields on fixed-rate bonds and loans. Equities of companies that cannot so easily pass the higher costs on to customers also tend to suffer.
Consumer prices in the United States in September rose at an annual rate of 5.4%, faster than in August and just below a 30-year high. Germany’s annual rate of 4.5% in October was the biggest year-over-year increase since 1993.
Central bankers in the US and Europe say the price hike is likely temporary and will subside as supply chain delays are resolved and economies run through restart crunches. But investors aren’t so sure. In addition to more traditional hedges against inflation, such as bonds whose returns are linked to consumer prices, they are turning to commodities.
Mr Brown, who helps design portfolios for some $ 1.2 trillion in client assets at UBS, recommends futures on commodities, energy stocks and currencies from oil-rich countries such as Russia and Canada. John Roe, head of multi-asset funds at Legal & General Investment Management, said he was protecting his investments against soaring prices with Chilean pesos, which are tied to copper prices, and stocks in mines. gold.
So far, the strategy seems to be working. Inflation is rising, but so are the prices of energy and many metals. Paul O’Connor, multi-asset manager at Janus Henderson, warned that this may not last.
Inflation today is fueled by erased supply chains that have created shortages of almost everything, pushing commodity prices up. But he expects future inflation to be driven more by rising wages, and it is less clear whether that would have the same effect on commodity prices. “Quite questionable,” he said of the strategy.
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