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Inflows into agriculture and industrial metal ETCs gain momentum


Agriculture exchange-traded commodities saw the largest investor interest last week, with net inflows rising by over USD20m, according to ETF Securities.

Agriculture exchange-traded commodities saw the largest investor interest last week, with net inflows rising by over USD20m, according to ETF Securities.

Total inflows into agriculture ETCS have surged by 31 per cent (USD240m) this year, with only gold and oil ETCs seeing larger inflows.

Inflows into agriculture ETCs have been gaining momentum, with flows rising now for seven consecutive weeks. ETFS Agriculture has seen the largest inflows followed by ETFS Wheat.

ETF Securities says flows appear to be being driven by a broadening of investor allocations to commodities and ‘hard assets’ more generally as investors’ look for ways to hedge portfolios against longer term inflation and currency depreciation risks. In addition, agricultural prices have historically had a low correlation with the business cycle and cyclical assets such as equities, helping more conservative long term investors diversify their investment portfolios.

Flows into long industrial metal ETCs continued to rise last week, the 12th consecutive weekly rise. Industrial metal ETCs have seen inflows rise by USD90m this year, with the bulk of the flows going into ETFS Industrial Metals, ETFS Copper and ETFS Nickel. In terms of price performance, industrial metals have been extremely strong performers this year with ETFS Copper topping the commodity tables with a stunning 53 per cent return so far this year, ETFS Zinc up 25 per cent and ETFS Agriculture up 21 per cent.

The momentum of flows into gold ETCs slowed last week with net flows dipping two per cent as risk assets continued to rise on hopes that the global business cycle may have bottomed and the US dollar rallied on worries about the Euro as the ECB has hinted at more aggressive monetary easing. So far this year inflows into ETF Securities physically-backed gold ETCs are up 36 per cent (USD1.5bn) from end 2008 levels. The stability of gold ETC flows in the face of a relatively sharp drop in the gold price indicates that many gold ETC holders are investing in gold for long-term strategic purposes such as portfolio diversification, a hedge against inflation and insurance against further ‘event risks’.

Flows into energy ETCs remained moderate last week following the surge of inflows in the first few months of the year. Inflows into energy ETCs rose USD11m last week compared to an average of USD66m between December 2008 and the end of 1Q 2009. It appears that as the oil price has risen from a low of around USD38/bbl to around USD50/bbl investors have slowed the building of long positions as they assess the near-term supply/demand outlook. So far, however, there are no signs of investor selling or of new positions being built in ETFS Short Crude Oil or other short energy ETCs indicating that most investors still remain constructive towards the oil price outlook.

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