Seeking Alpha
Profile| Send Message|
( followers)  

Last week, Barclays (NYSE:BCS) announced the launch of the Barclays Capital Commodities Index. The BCI index aims to be a benchmark that invests on a diversified portfolio of commodities ranging from energy to grains and oilseeds, and even livestock. Soon after this announcement, the investment bank also announced the results of the institutional investors' annual survey on commodities. According to Kevin Norrish, managing director of Barclays Capital commodities research, there is a consensus on higher commodity prices:

Investors expect to see continued strong demand from emerging markets and they predict another strong year for commodities.

According to the survey, 75% of the investment bankers suggested that they will continue investing in commodities. Last year, investors poured in $62 billion to commodities. However, there are different views on different commodities. A significant amount of respondents suggested that gold has already reached its peak level and has very limited upside potential. It will need a radical catalyst to keep on its nine year upward trend.

George Soros, the world-famous hedge fund manager, holds SPDR gold (NYSEARCA:GLD) as the largest investment, worth $657 million, followed by Interoil (NYSE:IOC). Soros fund also has a significant amount of investment in Plains Exploration (NYSE:PXP), Ishares Comex Gold (NYSEARCA:IAU) and Kinros Gold (NYSE:KGC). These investments are worth $171 million, $69.7 million, and $64 million, respectively. The most recent filings on I-Metrix Edgar-Online suggest that he is neither bullish nor bearish in his gold holdings.

John Paulson's Hedge Fund is the largest holder of SPDR gold, worth $4.38 billion. Therefore, I decided to look at his portfolio as well. His current strategy is similar to that of George Soros: Hold and wait. Up until today, Paulson is cautiously holding gold without any change in the shares. Note that Paulson has reduced Kinross Gold (KGC) holdings by 40% while keeping Gold Field (NYSE:GFI) shares. If you are willing to invest, or already invested in gold, it is a nifty idea to check both Soros' and Paulson's portfolio to see what they are doing. Once, Paulson starts selling off his gold holdings, the price of gold will start falling off the cliff.

Investment bankers have extremely high expectations on fundamental commodities. 2011 is expected to be the year of agricultural commodities:

Corn and wheat have the highest upside potential after oil.

So far, agricultural commodities provided generous returns: Cotton (NYSEARCA:BAL), Coffee (NYSEARCA:JO), Cocoa (NYSEARCA:NIB) and Corn (NYSEARCA:CORN) greatly outperformed S&P 500 (NYSEARCA:SPY), returning 44.7%, 12.4%, 6.8%, and 8.3%, respectively. After showing a 50.1% increase last year, Grain (NYSEARCA:JJG) lost 1.4% since January. Potash (NYSE:POT), world's largest fertilizer company, returned 10.89%.

Barclays' survey also signals that, energy commodities, particularly oil, and coal are expected to continue their upward trend:

The booming economies of China and India will continue to drive strong demand growth for most commodities over the next ten years. As a consequence, the price outlook for those commodities where physical supply is struggling to keep up like oil, coal and copper is very good.

Among the commodities, Silver (NYSEARCA:SLV) and Tin (NYSEARCA:JJT) were the best performers with YTD yields of 20.6% and 18.7%. Oil (NYSEARCA:OIL), Coal (NYSEARCA:KOL), and Copper (NYSEARCA:JJC) returned 8.9%, 4.9%, and -0.8%, respectively. Oil producing companies are also expected to benefit from the rise in oil prices. According to my recent analysis, stock performances of the following energy companies are almost perfectly correlated with oil prices.



Pearson Correlation

Berry Petroleum



Canadian Natural Resources



Occidental Petroleum



Newfield Exploration Co.



Talisman Energy Inc.



Key Energy Services Inc.



Rowan Companies Inc.



Oasis Petroleum Inc.



For some reason, investment bankers believe that natural gas will perform second worst after gold. I do not believe this and the market does not believe in it either: Natural Gas (NYSEARCA:GAZ) returned 6.7% since January. Natural gas is much cleaner than gasoline and its carbon emission level is significantly lower. It might be the oil of the 21st century. Right now, it is the best time to go natural, since we seriously need to do something about global warming before it is too late.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Hedge Fund Commodities Holdings: Higher Prices Ahead?