Over the past decade investing in commodities has been muted as capital eroded during the 2014-2015 commodity bust. But things are looking up now, says Neuberger Berman. The investment manager says that apart from the near-term weakness, conditions for commodities investments are at their best.

One of the reasons for the interest in commodities is due to the coordinated fall of both bonds and stocks, which has left investors scurrying for new alternatives in the face of inflation. Based on data analysed by Neuberger Berman, commodities have historically performed well during an inflationary boom and inflationary bust, even if stocks, government bonds and corporate bonds were on a decline.

“We believe it’s likely that we are headed into an inflationary regime in which commodities could be supported by major shifts on supply and demand, lasting over the next five to 10 years,” writes Hakan Kaya, Senior Portfolio Manager at Neuberger Berman.

The investment management firm talks about drivers of higher commodity prices — decade-long low investments, deglobalization, geopolitical risks and supply chain fragilities, inflationary policy changes and the green revolution.

Neuberger Berman says that it is unlikely the patterns of investing in commodities will increase exponentially due to ESG concerns, supporting prices in the long run. On the deglobalization aspect, there is a trend of re-shoring of operations to prevent disruptions. Sustainable energy is dependent on commodities, for example, electric vehicles are increasing the demand for copper.

But what has changed compared to a few decades ago? “Back in the 1800s, the whale business eventually gave way to the oil business, and hopefully fossil fuels will sunset with the advent of clean energy—but between now and then, there could be meaningful price risks in energy and a clear ramp-up period for metals and biofuels,” says Neuberger Berman.

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