UBS has shifted its positioning on commodities, elevating both energy and agriculture from neutral to "moderately overweight" as it sees the wider commodity backdrop strengthening over the medium term. The move was outlined in a note led by strategist Giovanni Staunovo.
In its analysis, the bank said improved macroeconomic conditions and clearer market signals support the case for higher exposure to commodities. UBS highlighted near-term upside risks for crude oil even as prices have moved lower in recent days, noting continued disruption to flows and the ongoing closure of the Strait of Hormuz.
"Hence, we see upside risks to oil prices in the short term," the bank wrote.
UBS pointed to the structure of the oil futures curve as an additional reason to favor the energy allocation. With the curve strongly downward sloped, or in backwardation, the firm argued the moderately overweight stance would stand to gain from roll returns should oil prices trade sideways.
"But with the oil curve strongly downward sloped (backwardation), the moderately overweight would also benefit from roll gains if oil prices move sideways."
Beyond near-term dynamics, UBS set out a list of multi-year drivers it expects to underpin commodity prices. Those factors include a "steady rise in emerging market demand," global net-zero ambitions and climate-related pressures, and what the bank described as "structural underinvestment across almost every sector."
While UBS did not suggest commodity prices will climb in a straight line, it recommended an active stance for investors seeking commodity exposure. The bank advocates "dynamically adapting" positions in response to shifting macro trends and broad price moves and favors a "differentiated sector approach" to capture sector-specific dynamics.
UBS also suggested investors could enhance returns on cash collateral by replacing money-market instruments with a higher-yielding collateral portfolio as part of implementation choices linked to commodity allocations.
From a general perspective, the bank said "macroeconomic conditions and market-based signals both remain supportive" of its upgraded stance. The note emphasizes both the short-term upside risk to oil and longer-term structural reasons to keep a constructive view on commodities, while cautioning that active management is preferable to a passive, one-size-fits-all approach.