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* Sector sees increase after three years of decline
* Boosted by U.S. power and gas, investor products
* Q1 commodity assets under management up 10 pct - Citi (Adds analyst comment, details)
By Eric Onstad
LONDON, May 19 (Reuters) - Commodities revenue at the top 10investment banks climbed 26 percent in the January-March period,the first gain in first-quarter turnover since 2011, due tohigher U.S. power and gas turnover plus stronger investorinterest, a consultancy said.
Revenue from commodities for the leading banks in the firstquarter rose to $1.8 billion from $1.4 billion in the sameperiod last year, London-based financial industry analytics firmCoalition said in a report on Monday.
It marked the first year-on-year increase in the firstquarter since 2011, when revenue surged to $3.3 billion from$1.4 billion in the same period of 2010. Since then the trendhad been downward, although there were fluctuations.
Part of this year's gains stemmed from the energy sector,Coalition said. "The cold winter in North America createdvolatility and had a positive impact on U.S. power and gasrevenues," it said.
"Additionally, investor product performance recovered from avery low base as client activity levels showed someimprovement."
Commodities have been the best-performing asset class so farthis year and investors have warmed to the sector to providediversification in portfolios as it becomes more sensitive tosupply-demand fundamentals and less to macroeconomic factors.
The 19-commodity Thomson Reuters/Core Commodity CRB index is up 9.4 percent this year after shedding 5 percentin 2013.
COMMODITY ASSETS REBOUND
The revival of investor interest in the asset class was alsoreflected in data compiled by Citibank, showing commodity-linkedassets under management (AUM) rose 10.25 percent in the firstquarter to $394 billion.
While the figure is far below the recent peak of $555billion in April 2011, the rise is significant, analyst AakashDoshi said.
"The across-the-board first-quarter increase in marketvaluation of index, ETP (exchange-traded products) and activelymanaged investments totalling $37 billion does confirm the sharpturnaround for commodities this year after shedding 22 percentin AUM during 2013," he said in a note.
Many investors had shunned commodities in recent years dueto lacklustre performance and as the sector was buffeted bymacroeconomic events, moving in step with other assets.
But as the global economy has recovered, commodities havegone their own way, influenced more by supply-demandfundamentals and once again injecting diversity into portfolios.
Wall Street investment banks typically do not break downtheir commodity revenue, preferring to cite it as part of thebroader fixed-income, currency and commodities (FICC) category.
Commodities was the only sub-sector showing an increasewithin FICC, but it was not enough to keep FICC revenues fromfalling 16 percent to $22 billion, Coalition said.
Banks' commodities revenue had been steadily declining inrecent years as some institutions slashed exposure and othersshut commodities units, hit by tougher regulation and highercapital requirements after the global financial crisis.
The top banks' commodities revenue came in at $4.5 billionlast year, less than a third of the $14.1 billion they racked upin 2008 at the height of the commodities boom.
British bank Barclays was the latest institution tojoin the exodus last month, when it said it planned to quit mostof its commodities trading businesses.
JPMorgan has sold its physical commodities unit, andDeutsche Bank last year largely exited commoditiestrading.
Coalition tracks the following banks: Bank of AmericaMerrill Lynch, Barclays, BNP Paribas,Citigroup, Credit Suisse, Deutsche Bank, GoldmanSachs, JPMorgan, Morgan Stanley and UBS. (Editing by David Evans and Dale Hudson)
