Dutch pension funds and investment managers have questioned the value in outperforming commodity benchmarks, while in the UK Hermes Investment Management has shut down its commodities business line.
The asset manager, wholly owned by the £40bn (€51bn) BT Pension Scheme, will close its business after finding it increasingly difficult to deliver active returns in the asset class.
The news follows a growing trend in the Netherlands, where a number of pension funds – including large market players such as PMT, PME and PGB – have shifted away from commodities entirely.
The beleaguered asset class has hit returns at a number of the larger Dutch schemes of late.
The €4.8bn PostNL scheme reported a 13% loss on commodities, while the €17bn Philips Pensioenfonds also announced significant losses.
Over the first nine months of this year, the €334bn civil service scheme ABP and the €156bn healthcare scheme PFZW lost nearly 4% and 7%, respectively.
Last year, the €55bn metal scheme PMT divested its 2% allocation to the asset class in favour of equities, while the €18bn PGB, the pension fund for the printing industry, cut its exposure by almost €500m.
The €38bn metal scheme PME also fully divested, arguing that the asset class added little value and at times crossed “ethical boundaries”, particularly with respect to soft commodities.
Hermes said, given the volatility of the asset class, it believed clients would be better off using commodities passively, as a diversifier.
In a statement, it said: “We are an active manager, and we have found it increasingly challenging to deliver sustained, active returns in commodities.
“A growing number of our clients and prospects are viewing commodities as a tactical diversification play, and, longer-term, we see this trend continuing.
“This will impact future demand for our strategy and affect our ability to deliver best value to our clients.”
Jason Lejonfarn, a commodities experts at BNY Mellon, has attributed the disappointing returns in commodities to a drop in prices of cereals, as well as the slowdown of the Chinese economy.
However, Philippe Roset, head of Benelux at ETF Securities, has argued that returns over the past 10 years have averaged 7.3%.
“This is better than equity,” he said.
Roset said he referred to the Bloomberg Index, “as this provides a better picture because energy has a less prominent weighting than the Goldman Sachs Index”.