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Commodity-themed equity ETFs surge as Fed begins quantitative easing

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Commodities and commodity-themed equity exchange-traded funds surged last week, with broad-based gains of up to 13 per cent, substantially outperforming the rally in global equity bench

Commodities and commodity-themed equity exchange-traded funds surged last week, with broad-based gains of up to 13 per cent, substantially outperforming the rally in global equity benchmarks, according to ETF Securities.

The firm says the extremely strong rally appears to have been sparked by the surprise Fed purchases of government bonds, causing a rally in cyclical assets and assets perceived as inflation and US dollar hedges.

The ETFS Dow Jones Stoxx 600 Basic Resources Fund, the ETFS Russell Global Coal Fund and ETFS Dow Jones Stoxx 600 Oil & Gas Fund were up between seven per cent and ten per cent last week, and are up four per cent to 15 per cent over the past month.

ETFS Dow Jones Stoxx 600 Basic Resources Fund has been in the top five performing Stoxx sectors over the past fortnight.

Energy ETFs, including ETFS Dow Jones Stoxx 600 Oil & Gas Fund, ETFS DAXglobal Alternative Energy Fund and ETFS Russell Global Coal Fund also performed strongly, up seven per cent on average last week.

Rises in oil and gas companies have so far lagged the recent rise in oil prices, with West Texas Intermediate spot oil prices up 30 per cent over the past month versus a four per cent rise in ETFS Dow Jones Stoxx 600 Oil & Gas Fund.

This relative underperformance of the oil ETF has left ETFS Dow Jones Stoxx 600 Oil & Gas Fund trading at a 16 per cent discount relative to its historic ratio to the WTI oil price.

The ETFS S-Net ITG Global Agri-Business Fund has consistently been in the top three performing ETFs so far in 2009. It currently has the second highest returns over the past three months at six per cent, compared to a 12 per cent drop in the MSCI World Index.

Agriculture’s low correlation to the business cycle and strong long term supply-demand fundamentals are underpinning its solid performance, says ETF Securities.

The ETFS Russell Global Gold Fund, which tracks the word’s biggest gold miners, is up 75 per cent since 31 October 2008. This compares to a 15 per cent fall in the MSCI World Index over the same period.

ETF Securities says gold demand is likely to remain strong this year with high political, economic and financial uncertainty driving demand for safe haven assets and defensive themes. Investment in gold miners provides leveraged exposure to underlying gold prices, with miners profiting from stronger revenue and falling costs.

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