Commodities are now outperforming stocks for the first year since 2007 as a result of May’s positive return in the sector, putting the bear market behind them.
A positive return from commodities in May marked the first string of positive returns over three consecutive months since April 2014.
“If this outperformance holds through the year’s end, it will break the longest number of consecutive years that stocks outperformed commodities,” said Jodie Gunzberg, global head of commodities and real assets at S&P Dow Jones Indices.
In May, the S&P GSCI, a main commodities index, gained 2.2%, while the index return for three months was 18.1%. This three-month return was the biggest three-monthly gain from commodities since July 2009.
However, May commodity returns were not all positive. The industrial metals sector lost 7.1%, posting its worst month in a year, and the precious metals sector lost 6.3%, its first negative month of 2016.
The energy sector, which makes up about 70% of the index S&P GSCI, gained 4.6% in May, making a three-month return of 30.4%. It was the biggest three-month gain for energy since the period ending June 2008, said Gunzberg.
In recent months, commodity exchange-traded products (ETPs) have seen high inflows. Year-to-date at the end of April, commodity ETPs saw a record level of inflows, of $5.32 billion (€4.77 billion), according to ETFGI.
Geoff Blanning, head of commodities, at fund manager Schroders, said the commodities bear market was over.
"Following five years of devastatingly poor returns in the market, sentiment towards commodities is at rock bottom, but it’s starting to turn following the surge in the prices of a wide variety of products since the beginning of the year.”
He added: “The biggest price gains, in percentage terms, occur at the beginning of a bull market. And the best, lowest risk time to buy anything is when the consensus expectation is turning from bearish to bullish, as is happening now in commodities. Now is the time for investors to focus on this unloved asset class.”
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