12th June 2026
For those of you who know our investment process well, you might be surprised to learn that last week we introduced a direct commodities play into our cautious fund, Vanbrugh. Valuation sits at the heart of everything we do, and it is difficult to make a valuation-based argument for direct exposure to commodities given they offer no cash flows to value. However, we believe the inclusion of direct commodity exposure, especially in lower risk portfolios that have capital preservation objectives, have become too compelling to ignore.
Firstly, we have introduced active exposure to commodities, not passive. The new position is Neuberger Commodities run by Hakan Kaya. He’s been studying commodities since school, gaining a master’s and PhD in the subject, and running commodities funds since 2003. The fund uses a framework of scarcity and abundancy, resulting in a portfolio skewed towards commodities with the greatest supply/demand imbalances, so the greatest probability of price rises. That sounds like a blindingly obvious approach to the asset class because it is. Unfortunately, passive commodity indices aren’t designed in that way – they provide exposure based on historic production and trading volumes. The opportunity set spans energy, precious metals, industrial metals, agriculture, and power with the ability to access commodities that are not available in benchmarks.
There are strong structural shifts in place that underpin attractive absolute return potential that dedicated commodities exposure offers. Since 2020, inflation has been persistently higher across the globe. The list of reasons why is long and for those who enjoy economics cover both demand-pull and cost-push/supply side factors, which are often interrelated and end up reinforcing each other. On the supply side, changing global forces including a shift from globalisation to deglobalisation and introduction of protectionist policies, a rise in global conflicts relating to key resources and trade routes, and increasingly extreme global temperature swings impacting global food protection and energy demands are creating supply shocks that force prices higher. The more you get supply side shocks, the more demand drivers shift to protect against them. There is now a clamour from governments around the world for defence budget increases, building strategic stockpiles of key resources, and getting closer to energy independence often via huge renewable energy development – all big demand side shifts. Add in the massive AI infrastructure spending from the corporate sector and you have a lot of capital competing for finite resources. For good measure, you can also throw into the mix underinvestment from commodity mining businesses for over a decade after prior periods of over capacity build in the good times.
We want to have exposure that benefits from these structural shifts, without having to take on the risk of owning mining companies where operational issues can get in the way of exposure to rising commodity prices. It is also often difficult to isolate pure-play exposure to commodities that are seeing very tight supply/demand dynamics as many commodity producers are conglomerate businesses providing exposure to a broad range of different commodities.
We then get to the diversification benefits direct commodity exposure brings. During periods of higher inflation, equities and bond correlation has historically been positive, dampening portfolio diversification benefits. The risks of market sell offs and higher bond yields driven by structurally higher inflation is notoriously difficult to protect against, and one of the few asset classes that tends to do well is direct commodity exposure as a pure play on persistent inflation dynamics. Another factor at play is concerns about unsustainable government debt levels and the risks of currency debasement remaining high. Hard assets, like commodities, have the advantage of being able to maintain their real value within a portfolio. There are also diversification benefits to the other rate sensitive asset classes within Vanbrugh, in particular property, infrastructure, private equity and other alternatives. Long-term correlation of commodities to our alternative’s exposure is close to zero.
Summing up, a great active manager exploiting structural changes across the global economy while bringing significant diversification benefits to both traditional asset classes and alternatives is a very compelling mix. We are increasingly having to utilise the full tool kit in a multi asset investors’ armoury to build portfolios robust enough to navigate evolving market dynamics.
Dan Cartridge – Fund Manager
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