Commodities collapse has not scared off U.S. funds - Barclays

LONDON Dec 9 (Reuters) - A majority of investment funds in North America plan to place at least 10 percent of their money in commodities over the next three years, despite the recent collapse in prices which has left many nursing heavy losses, according to an annual survey by Barclays Capital.

"People still want commodity exposure in their portfolios," said Barclays Capital analyst Kevin Norrish. "They still greatly value commodities for their diversification prospects."

The global economic downturn has crushed commodity prices over the last five months, with prices reversing sharply after soaring to record highs during the first seven months of 2008.

Investors had poured cash into crude oil, cattle, corn, metals and others, buying into heightened concerns over rising global demand for commodities on the back of booming economies of China and India while supplies looked set to tighten.

But as consumers baulked at sky-high prices and the slowing global economy began to cut into demand, prices rapidly turned lower, leaving many financial investors holding losing positions and raising questions over commodities' ability to protect investors portfolios when equities are collapsing.

Crude oil prices have crashed by more than $100 a barrel since peaking near $150 in July, while copper and aluminium are down by 65 percent and 55 percent respectively.

However, according to Barclays survey, many funds will continue to invest in commodities as they do not see low prices lasting.

"Investors do not see current prices in line with supply and demand fundamentals," said Norrish.

FAVOURITE PICK

Over 80 percent of investors surveyed saw crude oil prices averaging more than $75 a barrel over the next five years, with 39 percent predicting oil and other energy related commodities will offer the best returns in 2009.

Crude oil contracts for delivery in January 2010 are currently more than $15 higher than prices for delivery next month, while contracts for delivery five years forward are more than $30 higher.

Agricultural commodities -- the favourite pick by investors in last year's survey -- were chosen to outperform all other commodity sectors by just 28 percent of investors compared with 45 percent in 2007.

Investors surveyed by Barclays said their main reasons for investing in commodities were portfolio diversification and concerns about higher inflation in the coming years, as well as outright performance.

"Despite the volatile markets and falling commodity prices of recent months, institutional investors are committed to increasing the sophistication of their commodity investment strategies," said Joe Gold, co-head of commodities at Barclays Capital.

Barclays said that investors largest concern about investing in commodities was a slowdown in emerging market economies. (Editing by James Jukwey)