US institutional investors urged to eye commodities for inflation protection/capital preservation

Written by Adam Cadle

16/08/2022

US institutional investors should be eyeing commodities, namely those classified under the energy basket, for inflation protection and as a means of capital preservation in the current market environment, Cerulli has said.

Historically, Cerulli said, commodities have been considered a safe bet during inflationary periods due to relatively high correlations with key inflationary metrics such as CPI and PCEPI. Given the most recent inflation readout of 8.5% (12 months, ending July), sustained market volatility, and supply pressures, Cerulli said it expects commodities classified under the energy basket to provide asset owners the best protection against inflation. Cerulli analyst Jacob Conecoff said that managers should proceed cautiously however, as ESG requirements of some clients may restrict investment in fossil fuels, thus precluding some of the major commodity indexes.

Cerulli’s research also highlighted an increasing interest in cryptocurrency as an investment but finds that regulatory oversight continues to be a significant barrier to institutional entry into the asset class. According to the latest research, only 20% of investment consultants indicate that their institutional clients have positions in cryptocurrency or adjacent investments.

“While there is much debate about crypto having inflationary hedge characteristics similar to those of certain commodities. It has yet to be fully understood as an asset class, is highly speculative, and is not recommended by nearly all institutional asset managers and investment consultants at this time,” Conecoff added.

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