NEW YORK (Reuters) – Retail mom-and-pop investors made bets on funds in Morningstar’s Commodities Broad Basket fund category in January, the largest net inflow of cash since March 2011, ahead of brewing inflationary pressures.
The commodities category attracted $1.9 billion last month, compared with negative outflow of $186 million in December and cash inflow of $319.5 million in November, according to Morningstar data.
“The ‘deflationary and disinflationary mindset’ has eroded. Getting out of that mindset is quite helpful to commodities,” Jeffrey Sherman, deputy chief investment officer at DoubleLine, said about the multiyear decline in the broad commodities market which bottomed in January 2016.
Indeed, the Consumer Price Index, a key indicator of inflation trends, jumped 0.5 percent in January, well above market expectations, the Labor Department reported on Wednesday.
The Broad Basket fund category invests across the breadth of the commodities markets: metals (e.g., nickel, copper), energy products (e.g., crude oil, heating oil, unleaded gasoline, natural gas) agricultural products (e.g., cotton, sugar, soybeans, wheat, live cattle).
The demand for commodities has also filtered through hedge funds. Hedge funds have their highest exposure to commodities since 2012, according to a report by Credit Suisse.
Major money managers DoubleLine and Pacific Investment Management Co (Pimco) have expressed their bullishness around commodities.
In a Dec. 5 webcast, DoubleLine chief executive Jeffrey Gundlach, known as Wall Street’s Bond King, told investors that commodities were attractive relative to U.S. stocks, which have been in a multiyear bull market.
Wall Street had wildly volatile trading last week that pushed the market into correction territory. Since Thursday, the S&P 500 has surged 4.56 percent, its strongest four-session performance since mid-2016. The index remains down about 6 percent from its record high on Jan. 26. [.N]
Gundlach also said in December that commodities prices historically have surged late in past economic cycles. Assets of the DoubleLine Strategic Commodity Fund, launched in May 2015, have grown from around $30 million as recently as last December to the current $207 million.
Mihir Worah, Pimco’s CIO of asset allocation and real return, has said “we know historically commodities do well in the late stages of an expansion as supply bottlenecks fail to keep up with demand growth.”
Reporting by Jennifer AblanEditing by Matthew Lewis