Strategic shift as commodity investors eye cyclical rebound amid supply constraints

Trevor Greetham times his portfolios not by the office clock but by an investment dial that shifts his exposure to equities, bonds, commodities and cash. Managing roughly £4bn of commodity holdings , about 5 per cent of the funds he runs for Royal London , he is positioning for what he describes as the early stages of a renewed upswing in raw materials driven by overheating in major economies over the coming two years.

Investor interest in commodities has accelerated recently, driven by a mix of diversification needs, inflation protection and currency dynamics. Broad measures of the sector have rallied strongly after a prolonged lull: the Bloomberg Commodity Index has outpaced global equities and bonds during the past six months, reflecting gains across precious and industrial metals as well as other commodity groups. According to Bloomberg, the index’s composition has also been adjusted for 2026, with heavier weightings for Brent crude, gold and copper, underscoring the growing influence of energy and metals on benchmark performance.

One argument for adding hard assets is that their returns need not mirror those of stocks or bonds, offering a hedge against concentrated equity valuations and rising price pressures. The dollar’s recent weakness has also made dollar-denominated commodities relatively cheaper for buyers outside the United States, and long-run patterns show major commodity indices often move inversely to the greenback. BlackRock’s EMEA head of investment strategy, Karim Chedid, says “We’re seeing more flows shift over to hedging,” noting a marked jump in hedged equity flows from Europe between 2024 and 2025.

Supply-side constraints reinforce the bullish case for certain materials. Industry specialists highlight chronic underinvestment in mining over the past decade: capital expenditure at large global miners fell sharply between 2015 and 2022, and only began to recover around 2023, according to RBC Capital Markets and S&P Capital IQ data. As Evy Hambro, BlackRock’s global head of thematic and sector investing, puts it, “There’s been under-investment in mining supply.” That shortage is particularly salient for the metals central to electrification and battery supply chains, with BlackRock and other managers flagging copper, lithium and similar inputs as likely to face persistent demand pressure from energy transition and AI-driven infrastructure spending.

Investors deciding how to gain exposure face a familiar trade-off: own the commodities themselves via exchange-traded products and futures, or take stakes in the companies that extract, process and trade them. Direct commodity vehicles can provide an unvarnished link to spot prices and act as an inflation hedge over shorter horizons, but they bring structural costs. Morningstar’s Kenneth Lamont warns that rolling futures contracts can impose a persistent drag when contracts are replaced at higher prices, and passive commodity ETPs often carry these costs unless they deploy more complex, higher-fee roll strategies. Index providers and asset managers now offer “smart” ETPs that attempt to reduce roll losses, but at roughly double the expense ratio of simpler products.

By contrast, equities of producers and traders can magnify commodity moves because companies earn operating leverage when prices rise and can reinvest cash flow to expand output. Historical returns illustrate this: over the last decade through to January this year, natural resource equity funds returned materially more than the underlying commodity indices, according to Morningstar Direct. Portfolio managers such as George Cheveley at Ninety One favour firms that combine production with exploration capacity, arguing that volume growth amplifies gains when prices turn higher.

Different commodity sectors present distinct cases. Many managers have increased allocations to precious metals as a hedge against fiscal deficits and a potential fall in real interest rates; Neuberger Berman’s team has held gold since November 2023 and also owns copper to capture electrification-led demand. Bloomberg’s sector-level data for recent years show precious metals and industrial metals have been standout performers, while energy and grains have experienced more mixed returns.

Timing and investor horizon remain critical. Broad commodity indices have a chequered long-term track record: over a 20-year stretch the Bloomberg commodity benchmark has failed to deliver a positive return and has lagged both global equity and bond indices, suggesting only patient or tactical investors may benefit from passive commodity exposure. For those seeking shorter-term inflation hedges or protection against acute geopolitical shocks that can spike oil and precious metal prices, direct commodity allocations can be useful. For investors seeking leveraged participation in a sustained commodity upswing, exposure to industry equities , obtained through active natural-resource funds or sector ETFs , may offer greater upside, albeit with company-specific risks.

Ultimately, whether to buy the physical-linked ETPs or the shares of producers depends on objectives, timeframe and tolerance for roll costs and operational risks. Asset managers and index providers continue to adapt products and weights , Bloomberg’s announced 2026 BCOM target weights, for example, increase copper and gold allocations and reintroduce cocoa , reflecting shifting market realities and the evolving balance between supply and demand. For now, investors weighing added commodity exposure must decide if they are preparing for a cyclical rebound in raw materials or seeking a strategic, longer-term ballast against inflation and currency volatility.