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Commodities outperform equities by eight per cent in Q1 2009


ETF Securities’ quarter one 2009 results show that commodities outperformed equities in the first quarter, extending the out-performance of the past ten years.

ETF Securities’ quarter one 2009 results show that commodities outperformed equities in the first quarter, extending the out-performance of the past ten years.

Precious metals, as measured by the DJ-AIG Precious Metals Sub-IndexSM, was the best performing commodities group, up seven per cent during the quarter, followed by the DJ-AIG Industrial Metals Sub-IndexSM, up five per cent.

Commodities as measured by DJ-AIG-F3 Commodities IndexSM, fell four per cent during the quarter, compared to a 12 per cent decline in Dow-Jones Euro Stoxx 50 Index, a ten per cent fall in the FTSE 100 Index and a 11 per cent fall in the MSCI World Index during the period. 

A surge in demand for commodities and for liquid, collateralised and physically backed exchange traded commodities caused ETF Securities’ assets under management to rise by 44 per cent during the quarter to USD10.1bn. 
ETFS Physical Gold, Gold Bullion Securities and ETFS Physical Silver were the best performing long ETCs during the early part of the quarter as investors searched for safe havens from financial and economic upheaval. During the latter part of the quarter, as investors became more optimistic about the economic outlook, cyclical ETCs pulled ahead, with ETFS Copper, ETFS Physical Platinum and ETFS Physical Silver surging to finish as the strongest performing long ETCs during the quarter with returns averaging 25 per cent.
Widely diverging commodity price trends during the quarter meant that a number of short ETCs (ETCs that move -1X the daily per cent change of the underlying index) also performed strongly. ETFS Short Natural Gas was the strongest performing ETC, rising by 43 per cent, followed by ETFS Short Energy DJ-AIGCISM up 15 per cent, and ETFS Short Wheat up 12 per cent. 
Commodities have been the best performing major asset class over the past ten years. Over this period the DJ-AIG-F3 Commodities IndexSM returned 239 per cent with an average annual volatility of 15 per cent.  This compares to a 16 per cent decline in the MSCI World Index with a volatility of 17 per cent over the same period. European equities (as measured by the  DJ-EuroStoxx50 Index) were down 35 per cent over the past ten years, real estate  (as measured by the UK EPRA Real Estate Index) was down 31 per cent and bonds (as measured by the Barclays Capital Bond Composite Global Index), had a total return of 72 per cent.
The first quarter was marked by diverging trends between various commodity sectors and individual commodities as investors began to focus on fundamentals after the indiscriminate de-leveraging driven selling of the second half of last year. 

Initially silver and gold were the strongest performers, with ETFS Physical Gold and Gold Bullion Securities rising by ten per cent during January-February, while ETFS Physical Silver rose by 22 per cent as investors focused on safe haven assets during the financial turmoil of the period. However, in early March, as some key global activity indicators showed signs of stabilization (or at least less rapid deterioration), performance shifted to more cyclical precious metals, with ETFS Physical Platinum and ETFS Physical Palladium outperforming. 

According to ETF Securities, oil ETC performance started the quarter poorly with the Brent oil spot price dropping to a low of USD40/bbl at one point. However, as global cyclical indicators improved in the latter part of the quarter and OPEC cut more than expected, oil prices rebounded strongly, with the spot Brent oil price ending the quarter around USD50/bbl. 
Industrial metals performance was extremely mixed during the quarter. The standout long ETC was ETFS Copper, up 30 per cent. ETFS Leveraged Lead was up 46 per cent. ETFS Zinc was also a strong performer, rising by seven per cent. On the other hand, ETFS Nickel was one of the worst performing commodities, falling by 16 per cent and ETFS Aluminium was down 12 per cent. Towards the end of the quarter, as global activity data showed some signs of stabilization, industrial metals ETCs also started to see new flows, with inflows of USD76mn into industrial metals ETCs, increasing total assets to USD220m, up 53 per cent in the quarter.

Agriculture was expected to outperform given its low correlation to the business cycle, however its performance was also mixed, with ETFS Sugar up five per cent and ETFS Coffee up 1.5 per cent, but ETFS Wheat down 15 per cent and ETFS Cotton down seven per cent. Flows into agriculture ETCs picked up during the quarter, resulting in assets of USD966m by the end of the quarter, up 29 per cent. The bulk of flows went into ETFS Agriculture and ETFS Wheat.

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