Commodities re-emerge as ‘attractive’ diversifier: Janus Henderson

Yasmine Raso

Senior Journalist, Financial Newswire

23 February 2026

The case to cease treating commodities with caution has been brought by Janus Henderson Investors, with the historically underinvested asset class thrust into the spotlight as an “attractive” strategic diversifier.

Portfolio managers, Rob Shimell and Daniel Sullivan, said while investors are understandably concerned about the ‘persistent headwinds’ faced by traditional long-only futures-based commodity strategies, considering the modern opportunities now available may prove more fruitful.

“Negative carry from contango (where later-dated contracts cost more than today’s price) can erode returns as investors roll into higher-priced contracts. Performance has been inconsistent, marked by episodic rallies and deep drawdowns,” they said.

“Commodity benchmarks also lack breadth, concentrating exposure in a small set of liquid futures while underrepresenting specialty metals, logistics, and downstream beneficiaries. Futures-only approaches limit responsible investing, offering little scope for stewardship or differentiation between credible and weak transition strategies. Finally, correlations often rise during market stress, reducing diversification when it is most needed.

“These shortcomings, and the associated risks, explain why many allocators have treated commodities with caution and tactically, rather than a strategic diversifier. This is despite the potential portfolio benefits that the asset class offers during periods of high or rising inflation, or supply-shock regimes.

“What is increasingly evident is that today’s commodities opportunity is playing out across extended supply chains, rather than solely through spot prices or futures curves. Take copper. Once a new mine is approved, it can take more than a decade to reach completion (an average of 17 years total from discovery to production).

“That long lead time helps explain why commodity cycles tend to persist, and why the opportunity extends beyond the underlying material itself. The argument is compounded by current projections which suggest a global, 10 million metric tonne annual supply shortfall by 2040 without significant investment.

“In any modern “gold rush”, the beneficiaries are not only the miners, but also the companies that enable production to scale. This is the period where equipment manufacturers, engineering firms and service providers play a significant role.

“Construction and agricultural machinery, energy services, digitised farm technology and refining and processing infrastructure all see sustained demand as investment accelerates. Across commodities the opportunity broadens to advanced farming systems, fertilisers and seed providers, logistics, storage, processing and downstream users – parts of the value chain that a solely futures-based exposure cannot reach.”

Shimell and Sullivan said an impending commodities ‘supercycle’ would allow investors to capitalise on new opportunities fuelled by pushes towards decarbonisation, deglobalisation and rising defence spending.

“Commodity markets have faced years of underinvestment, a consequence of low capital expenditure (Exhibit 1), structural supply constraints and depleted inventories, with major projects taking a decade or more to build. At the same time, a sustained push towards decarbonisation is dramatically increasing demand for copper, nickel, lithium and rare earths for electrification and renewable energy infrastructure.

“Global fragmentation is reinforcing this trend. Deglobalisation and reshoring are prompting nations to secure domestic supply and build strategic stockpiles. Meanwhile, the rapid expansion of data centres and AI is driving new demand for power, cooling and the metals that underpin digital infrastructure.

“Rising defence spending is also adding pressure on the supply of specialised materials and fuels, while an ongoing trend of de-dollarisation has supported interest in real assets and precious metals. Finally, ongoing emerging market industrialisation and urbanisation are additional sources of structural demand increases – with incremental commodities demand growth moving from China to India and South East Asia.

“Together, these persistent forces point toward a durable, demand heavy environment for commodities. These are the building blocks of what we perceive as the early stages of a sustained commodities supercycle, at a time when relative valuations are close to historical lows relative to equities.”

Shimell and Sullivan encouraged investors to take on a “liquid, hybrid long/short approach” to commodities investing, that is designed to “adapt to today’s regime of supply shocks, policy uncertainty and inflation variability”.

“From an allocation perspective, the rationale is built around four potential benefits: returns (access to cyclical and structural drivers as part of a commodities super-cycle), diversification (where a long/short strategy can differentiate from long-only equities or bonds), inflation mitigation and event risk protection (geopolitics and weather are often catalysts for sustained trends).

“Importantly, commodity markets behave heterogeneously. For example, cocoa prices respond to West African weather and crop disease dynamics, while energy prices can pivot on OPEC policy, US shale production or geopolitics. That lack of correlated behaviour can help to boost the argument for diversification within a commodities strategy. Particularly one partnered with a long/short component, providing the capacity to go long where fundamentals are strong, and short where they are weak.

“Commodities are re-emerging as an attractive investment prospect, but the way investors access them matters. The familiar challenges of long only futures exposure – negative carry, sharp drawdowns, correlation spikes, limited breadth and ESG constraints – can be addressed through a more modern, hybrid approach. One that pairs allocating to commodity equities with commodity derivatives using a long/short approach, accessing the full supply chain, rather than just commodity producers alone.

“This creates a framework designed to pursue attractive returns, while offering genuine diversification, the potential for inflation protection, and with consideration for event driven market shocks – all while maintaining daily liquidity. With deglobalisation, decarbonisation, and geopolitics reshaping markets, an innovative approach to commodities is a prudent response to the structural forces defining the next decade.”