Commodities go out of fashion for wealthy

By Deepa Babington

GENEVA (Reuters) - Dabbling in commodities markets has fallen out of favor with the wealthy who are abandoning the sector in droves as energy and metal prices slide, private bankers say.

Commodity prices, which have surged for most of the past six years, have imploded over the last three months. Estimates by Citigroup and Barclays Capital put third-quarter losses in the asset class at between $50 billion and $60 billion.

"Commodities were in fashion at the beginning of the year and clients reduced their exposure mid-year," said Bruno Lebre, head of investment at SG Private Banking, adding he had been advising clients to limit energy and metals exposure in their portfolios.

"It's not that brutal (to merit getting out entirely). But we're telling them to reduce, or at least not to increase, the commodities component of their portfolios."

Many wealthy investors made an unusual foray into commodity markets in recent years, as booming demand from China and India fueled a rally in prices and spurred interest in the asset class, said Julius Baer Chief Operating Officer Boris Collardi.

"What we've seen over the last two years is that commodities were made accessible not only to high-level professional investors but also to the more normal day-to-day investor," said Collardi.

"There's been kind of a rush to these investments on the back of global demand and clearly on the back of price increases," he added.

But their appetite for the assets has faded just as quickly after prices starting tumbling in recent months over worries of falling demand and a looming recession.

"Many investors did participate in the commodity cycle and certainly in the last six months there has been less of an interest in that sector," said Barclays Wealth Vice Chairman Gerard Aquilina.

Gold -- considered a safe haven in times of crisis -- remains an exception to the trend, bankers said.

"Clients are asking for gold because they see a safety component in this," said Julius Baer's Collardi.

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(Editing by Jason Neely)