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Gold best-performing commodity in 2008, says ETF Securities

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Gold was the star performer in 2008 with a 44 per cent return in sterling terms, while commodities remain the best-performing asset class over five and ten years, according to a review

Gold was the star performer in 2008 with a 44 per cent return in sterling terms, while commodities remain the best-performing asset class over five and ten years, according to a review by exchange traded commodity provider ETF Securities.

While falling substantially in the second half of 2008 due to broad market falls and deleveraging, broad commodity indices still outperformed equities in 2008.

DJ-AIG Commodity Index 3 Month Forward fell 30 per cent in 2008 compared with a 42 per cent in the MSCI AC World Index.

EFT Securities says that although many assets fell in unison last year during the peak of the credit crisis, what really stands out is commodities’ outperformance over longer periods.

The DJ-AIG Commodity Index 3 Month Forward returned 70 per cent and 272 per cent over five and ten years, compared with 0 per cent and -2 per cent for the MSCI AC World Index and -10 per cent and -13 per cent for the S&P 500 over the same periods.

ETFS Physical Gold was the best performing commodity in 2008, up four per cent in US dollar terms while most other asset classes suffered significant falls. The gold spot price rose 44 per cent in sterling terms and 11 per cent in euro terms during the year.

By comparison, gold outperformed equities (as measured by the MSCI AC World Index) by more than 46 per cent in dollar terms. This outperformance was driven by gold’s low to negative correlation with equities, the fact it is not subject to credit risk and its status as a safe haven asset.

As a result, there was continued net inflows into ETFS Physical Gold and Gold Bullion Securities during 2008. Physically backed gold ETCs now total USD4.8bn in assets under management, while also recording the highest trading volumes.

In 2008, energy and oil prices attracted a great deal of attention. At the time oil prices peaked at around USD147 per barrel, ETFS Short Crude Oil was the fastest growing ETC. Once prices started to fall and approach USD50 per barrel, long oil ETCs, including ETFS Brent Oil and ETFS Crude Oil, then became the ETC of choice.

During 2008, oil ETCs accumulated USD450m of inflows to reach nearly USD600m in assets – a record for oil ETCs of which most came in the last two months of the year. At the same time, assets in ETFS Short Crude Oil significantly reversed, falling from USD350m to USD10m.

ETFS Short Gasoline (SGAS) was the best performing ETC of 2008, returning 94 per cent.

ETFS Short Industrial Metals and ETFS Short Copper returned 72 per cent an 82 per cent respectively.

‘Last year was a year of three parts,’ says ETF Securities chief operating officer Nik Bienkowski. ‘The first half of 2008 experienced large flows into a broad range of ETCs including agriculture, livestock, precious metals and energy. The second part of the year was marred by the credit crisis taking effect with outflows across the financial industry including commodities experienced. The final part of 2008 was marked by investors returning to liquid and transparent products, with a focus on oil and gold for commodities.

‘In 2009, we expect investors to continue to look for ways to profit in the current market however there will be increasing focus on liquidity, credit and transparency – ETCs solve all these problems.’

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