When asked if they thought the rally in natural resources had peaked, 63% of responding managers said they believed the rally had not yet peaked, while 31% said they thought it had (the remainder selected “other,” and indicated that their opinion depended on the specific commodity in question). Of those who thought the rally has peaked, there was little agreement on any one reason, but rising supplies and rising cost of expl
oration and production were both cited more frequently than other answers. Among respondents who believe the rally has further to run, rising demand from emerging markets was the leading factor cited, with supply constraints a close second.
The responses related to oil and natural gas are consistent with Morningstar holdings based data. We recently reviewed quarterly holdings data for European large-cap equity funds over the past three years, and found that the percentage of funds overweighting energy versus the MSCI Europe Index rose from 47% in March 2004 to a peak of 61% in September 2005, but had fallen back to 48% by then end of 2006.
When asked which resource subsectors would perform best in the next 12 months, agricultural commodities was selected most frequently. On the flip side, respondents named gold and paper and forest products as the sectors likeliest to deliver the worst performance in the period.
Performance Trends
Once again, a large majority of respondents said they expected large caps to outperform small caps over the next twelve months, and more managers expected growth to outperform than value (although a substantial percentage, 33%, were neutral on the topic).
Respondents chose the Euro and the Yen as the strongest currencies over the next twelve months, and the US dollar as the weakest. They also remained relatively conservative with regard to interest-rate exposure, clearly favouring short-duration bonds over longer issues. Please click here to read the survey and research note in their entirety.
