(Refiles to fix link to performance table in 6th paragraph)
* Top commodity funds up over 7 percent in Q2
* Average actively managed fund up over 2 percent
* Base metals expected to perform well in H2
By Claire Milhench
LONDON, July 10 (Reuters) - Commodity funds delivered robustreturns in the second quarter, consolidating their recoverysince the start of the year, with rallies in energy and metalsboosting the top performers in the Lipper Global Commoditygroup.
Leading commodity fund managers say base metals shouldcontinue to perform well in the second half of 2014, withinvestor sentiment towards China improving, but the upside foroil is seen as more limited.
Commodities have put in a solid performance so far thisyear, although returns eased a little in the second quarter.
The average actively managed fund in the Lipper GlobalCommodity sector was up 2.18 percent April-June, with the topperformers achieving plus-7 percent returns.
Some of these funds invest in both commodities futures andnatural resource equities, and so benefited from a rally inenergy and mining stocks as well as a run up in futures prices.
For a table of top performing commodity funds in Q2, see
Of the pure futures funds, one of the highest ranked was the$472 million Commerzbank Rohstoff Strategie Fond.
This returned 5.42 percent and came eighth in the Lipperleague table, fuelled by chunky exposures to Brent crude oil,industrial metals, platinum and palladium.
Eugen Weinberg, head of commodity research at Commerzbank,whose team advises on the fund, said they had been bullish oncommodities since the start of the year, partly because theconsensus was pretty bearish.
"But contrarian thinking on commodities markets often paysoff, especially the overlooked commodities, and it looks as iftoo much pessimism was priced in," he said.
Thomas Timmerman, head of asset management IB atCommerzbank, said the fund had done well because of its largeexposure to the futures market in the second quarter, when itwas 90-95 percent invested.
He said commodity prices had risen by between 5 and 15percent since the start of 2014, but many investors missed outas they have tended to focus on equity markets.
"There is definitely something happening in the commoditymarket, but the asset class hasn't been on their radar,"Timmerman said. This could be changing as in the last six weeksor so, Commerzbank has seen good inflows into its fund, he said.
Of the hybrid funds, the $424 million BlackRock CommodityStrategies Portfolio performed well, up 4.72 percent. Catherine Raw, a manager in the fund team,attributed its outperformance to energy and precious metalsstock picks, as market sentiment improved.
At the end of the quarter the fund had 24 percent in energynames such as Exxon Mobil, Chevron and Royal Dutch Shell.
Energy was the strongest performing equity sector lastquarter due to a combination of attractive valuations relativeto the rest of the market, increasing confidence in managements'focus on capital discipline and supply-side disruptionssupporting the oil price, Raw said.
"Mining equities also performed well with gold equitiesdelivering strong outperformance relative to the gold price,"she added.
STRONG MOMENTUM
Both BlackRock and Commerzbank see good upside potential inindustrial metals, with Commerzbank expecting an emerging marketrecovery to accelerate in the second half of 2014, driving basemetals demand.
The fund currently has about 28 percent in base metals and20 percent in platinum and palladium.
"There is strong momentum behind the industrial metals -copper, zinc, lead - but also the precious metals with anindustrial character such as platinum and palladium," saidWeinberg. He cautioned that the recovery would be "bumpy" so thefund retains an overweight to gold, for capital preservation.
Raw agreed that the outlook for base metals had improved asthe expected surpluses that many in the market had predicted hadnot materialised. "Copper, zinc and aluminium inventories havedeclined suggesting the market has returned to deficit, at leasttemporarily," she said.
She added that the Chinese economy remained an area ofuncertainty, but stronger macro data and targeted easing ofliquidity by the government is helping to restore marketconfidence, at least in the short term.
"This should be supportive for commodities such as iron ore,which were weak in the second quarter owing to increasing supplyand weaker than expected Chinese steel demand growth," she said.Iron ore is a major component of the big miners' cash flow andearnings, so a recovery in iron ore prices should be positivefor the sector.
By contrast, Weinberg said there was less upside potentialfor oil prices as the conflict in Iraq has so far failed to haveany lasting effect on exports or infrastructure. (Reporting by Claire Milhench; Editing by Ruth Pitchford)
