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February 10, 2013 at 12:32 PM
While it’s impossible to know what the future holds, it is possible to surmise what large numbers of investors think the future holds.
And from the perspective of Martin Kremenstein (left), who oversees Deutsche Bank’s $12 billion ETF portfolio in the U.S., investors are seeking portfolio diversification and expressing concern over inflation risk through a significant and growing allocation to commodities.
Speaking with AdvisorOne ahead of this year’s InsideETFs conference, which kicks off Sunday in Hallandale Beach, Fla., the Deutsche Bank executive has a unique vantage point, since he oversees the market’s largest broad-based commodities ETF.
And what he sees is a fund that is swelling with investment at an accelerating rate. The PowerShares DB Commodity Index Tracking Fund (DBC), with about $6.5 billion in assets, raised $1 billion in net new assets last year, at more than twice 2012’s combustive pace, adding another $200 million in January.
Calling DBC a bellwether for investor sentiment on commodities, Kremenstein says investors are adding exposure to the asset class primarily for two reasons.
“Sometimes they are using it as a hedge against inflation and other times as a diversifier to smooth out portfolio returns,” he says. “It’s never a bad time to use as a diversifier.”
Fears of inflation have risen to higher proportions recently, he adds.
“People are more worried about inflation than they have been in a while. The shooting up of ag prices late last year has gotten many people worried about food and energy inflation.”
As to portfolio diversification, he says “people have been underallocated [to commodities] for some time.”
The other key trend Kremenstein sees investors preparing for in 2013 is a strengthening dollar.
“The currency exposure that investors are running from their foreign investments, they’ve never paid any attention to,” the Deutsche Bank executive says. “They tend to only starting to examine it when it starts to go against them,” a lesson the election of Japan’s new prime minister is currently teaching investors.
A proponent of aggressive monetary easing, Prime Minister Shinzo Abe campaigned on a platform of weakening the yen as a means of boosting the moribund Japanese economy. Anticipating his victory in December, Japanese equities began soaring in November.
