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To: ms.smartest.person who wrote (959)	4/15/2006 6:12:11 PM
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Fund managers shift to metals from oil Thu Apr 13, 2006 8:28 AM BST By Daniel Magnowski LONDON (Reuters) - Money that was invested in oil futures is chasing better returns in metals, spurred by increases in copper and gold prices, a fund manager told Reuters. Funds which follow price trends cannot ignore the contrast between oil, which has been range-bound for months, and metals, which have shot up, Paul Mulvaney, founder and chief investment officer of Mulvaney Capital Management, said in an interview. "The Mulvaney Capital Global Diversified Program has moved money out of oil and it has moved money into metals, but it is not simply a case of moving money from one position to another," he said. "Oil trended strongly to August 2005, but has been range-bound since, whereas there is an ongoing rally in metals and our system concentrates positions in the most active trends." His fund, which has more than $130 million (74 million pounds) under management and around 60 percent exposure to commodities, may not be alone in doing this, he reckoned. "It's quite plausible that at some level everyone is a trend-follower. In my experience investors do try to chase performance." After peaking at almost $70 per barrel in late August 2005, US light crude futures were around $68 in mid-April. By contrast the London Metal Exchange's three-month copper contract rose from $3,600 a tonne in late August to around $6,000 in April. Futures of materials including oil, copper and gold have been heavily bought for profit-making purposes by fund managers diversifying into commodities from traditional assets such as equities and bonds. PORTFOLIO Mulvaney's portfolio was now all base and precious metals, long some energy products, long global stock indexes, particularly Japan, and starting to build a short position in interest rate products. Mulvaney's strategy allows the portfolio to be re-weighted, and both long and short positions built, in contrast to the passive indexes which take only long positions, such as the Goldman Sachs Commodities Index. These indexes have been the first choice for commodities investors -- around $40 billion has been ploughed into the Goldman's fund since 2002 -- but crunch time will come when they need to exit positions, Mulvaney said. "People who invest in indexes are like people who get into boats without rudders -- eventually when they realise they are heading towards an iceberg it causes alarm and despondency," he said. Pension funds which have invested in indexes could be among the victims. "In the UK, consultants are steering people towards indexes -- some pension funds are being badly advised, in my opinion." Mulvaney's head of sales, Colin Lloyd, was more strident: "Why do pension funds invest in passive long-only indices? (When they turn negative) there is going to be a big ugly scene about it and the trustees will say, 'sack the pension fund managers'," he said. The decision of Hermes Pensions Management, which runs BT's pension fund, to invest $1 billion into commodities this year was interesting because it indicated a more active approach. "It's the first time someone has seriously looked at indexes. If they re-weight the basket every month, as the research they quote suggests, to manage risk - for a 'passive' index, it's aggressively managed," Lloyd said. Pension funds are among the investors in Mulvaney's fund, as well as wealthy individuals, CTA specialist funds-of-funds and broader diversified funds-of-funds. © Reuters 2006. All rights reserved. investing.reuters.co.uk