From a pandemic-selloff low on March 18, 2020, commodities as tracked by the Bloomberg Commodity Index have returned more than 50%. That move after a multi-year bear market in commodities caught many market participants by surprise. This year, long-dormant consumer and producer prices have staged large increases. As a result, many investors and investment professionals are considering allocation changes, including to commodities, with an eye to guarding against the possibility of sustained higher rates of inflation. Against this backdrop, DoubleLine Capital has produced this edition of Round Table Prime: “Commodities, Commodity Futures and Commodity Stocks: Allocation and Investment Strategies.”
Jeffrey Sherman moderates this discussion with special guest Francisco Blanch, of Bank of America Merrill Lynch Global Research, and DoubleLine’s Jeff Mayberry and Samuel Lau.
Among other points, Blanch recommends buying cyclical commodities such as oil and industrial metals on dips (7:00). “Overall, growth rates maybe are coming down,” Blanch says, “but commodity demand will surely keep creeping up higher, and we still have plenty of supply shortages to deal with. On a net basis, we like buying dips.” He sees oil “close to $100 a barrel by the summer of next year on a number of factors driving it higher.”
Many U.S. oil producers (20:39), Lau notes, have shifted from investing free cash flows for added production to boosting shareholder value, although he adds that oil at Francisco Blanch’s $100 target could bring more production to market.
“Remember: goods, in order to produce them, the inputs are commodities,” Sherman notes (41:55). “Look at the Producer Price Index, which is giving almost double-digit readings right now. It’s signaling that this [inflation] is not behind us.”
Although the panelists are constructive on commodities, they also discuss risks to that outlook (48:59). “The Delta variant of the coronavirus is starting to pick up traction in the U.S,” says Mr. Mayberry, who observes that the hit to growth of renewed lockdowns could hit demand for commodities.
Jeffrey Sherman is DoubleLine Deputy Chief Investment Officer of DoubeLine Capital LP, an investment manager with $135 billion in assets under management invested in fixed income, equities, commodities, REIT and multi-asset strategies. Sherman also serves as portfolio manager on several DoubleLine strategies, including the DoubleLine Strategic Commodity Strategy, and hosts The Sherman Show, a podcast on investment, market and macroeconomic topics.
Francisco Blanch heads Global Commodities, Equity Derivatives and Cross-Asset Quantitative Investment Strategies at Bank of America Merrill Lynch Global Research. He was also head of Global Asset Allocation Research between 2010 and 2012. Based in New York, Mr. Blanch also serves on the Research Investment and Operating Management Committees at Bank of America Merrill Lynch Global Research. Before joining Merrill Lynch, Blanch was an energy economist focusing on global oil and gas in the Commodity Research group at Goldman Sachs & Company and consulted for the European Commission.
Samuel Lau and Jeff Mayberry are co-portfolio managers with Jeffrey Sherman of the DoubleLine Strategic Commodity Strategy. Lau and Mayberry also are members of DoubleLine’s Macro Asset Allocation team where they serve as fixed income allocation specialists.
