Commodities were the hottest asset class traded during the first quarter of this year and investors took note. This is because commodities didn’t fare well towards the end of last year when the energy market collapsed amongst the escalated China and U.S. trade war.
However, things are showing signs of improvement since it seems the two countries will reach a deal on trading.
Investors seemed to take particular note of specialized commodities funds since the beginning of the year. A recent Barclays report showed that investors poured $14.7 billion in commodity funds during the first three months of the year. The figure nearly erases the losses felt in the last quarter of 2018.
Much of the first quarter investments were concentrated in energy and agricultural funds. The rest of the commodity investments were poured into precious metals and industrial metals.
During the first quarter, commodities had the best return of all asset classes. The asset averaged a 16.6 percent return, representing a higher return than the 13.6 percent return on global equities and the 6.7 percent return of the high-yield bond.
There are also signs of rising inflation, which typically produces a favorable environment for commodities investments.
Some analysts say commodities still have room to rise due to supply outages and forecast limited growth. If the U.S. and China manage to reach a trade deal and the Chinese economy manages to avoid a slowdown, commodities will likely continue to rise.