FUND VIEW-HSBC Absolute Return dumps commodities

By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - One of HSBC's most actively managed fund divisions has been reducing its exposure to commodities, expecting a major correction in the high-flying sector.

The $2.7 billion Absolute Return Service, part of HSBC Investments, now holds only around 2 percent of its portfolio in commodities, down from a high of around 17 percent earlier this year.

In an interview with Reuters on Wednesday, Charlie Morris, head of absolute return, said commodity prices had risen to unsustainable levels.

"We are waiting for a full on commodity correction," he said, adding that the risk return for investors in commodities was now higher than for equities.

Commodities have been booming for a number of years on the back of emerging economies such as China and India, but price rises have been particularly sharp this year.

The broad Reuters/Jefferies CRB index .CRB, for example, has gained 17 percent since the end of 2007. By contrast, most equity markets have declined.

Morris said his division's exposure to commodities was now almost totally restricted to industrial metals.

It moved heavily into agricultural commodities such as wheat, corn and soyabeans in April last year then expanded into softs such as coffee, sugar and cotton in September.