LONDON (Reuters) - Supply shocks have revived the idea commodities can diversify an investment portfolio after around two years in which raw materials have moved in lockstep with other assets classes such as stocks and bonds, a conference heard on Thursday.
The collapse of Lehman Brothers in September 2008 hit confidence across financial and commodity markets as investors tried to price recession and the possibility of a 193Os style depression.
Investors fled to the safety of government bonds and gold and took their equity, commodity and credit allocations back to neutral weightings.
"We've had 24 months of extended high correlation," Tim Owens, head of commodities at JPMorgan said at an event orgainsed by S&P Indices on Thursday.
"In some markets fundamentals are reasserting themselves," he added, citing in particular the Russian wheat crisis and this month's outage at the Enbridge pipeline, a strategic supply route into the United States.
Russia's grain harvest has been savaged by a drought which triggered a grain export ban by the country, sending key U.S. wheat prices to two-year highs of $8.41 a bushel in early August.
In response to the Enbridge outage, U.S crude spiked higher in defiance of near record fuel inventories and narrowed an unusually wide spread between Brent and U.S. futures.
Benno Meier, a director at Morgan Stanley said commodities had not had a good two years, but he said: "I think we are at a turning point."
Indices, such as the S&P GSCI .SPGSCITR, which are heavily weighted towards energy, have delivered negative returns because limited outright gains have been exacerbated by a contangoed market structure.
Sophisticated commodity investors have adapted their strategy to the lack of prompt gains and negative market structure and many hedge funds are shorting the big indexes.
But veterans of the asset class say the classic diversification benefits have never gone away and over the long term, raw materials still respond to fundamentals of supply and demand and provide an inflation hedge.
"If you have a secular time-frame, then you expect commodities to provide better inflation hedging than other asset classes," said Robert Greer, executive vice president of PIMCO, one of the world's largest fund managers.
He also cited a straw poll of institutional investors and consultants PIMCO carried out earlier on Thursday, in which the most conservative estimates believed Brent crude would rise by 20 percent, while they predicted smaller gains for equities, a more mainstream asset class.
(Editing by Keiron Henderson)