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Commodity returns surge in first half of 2009, says ETF Securities

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Commodities were the best performing major asset class in the first half 2009, outperforming developed market equities, bonds and cash, according to ETF Securities.

Commodities were the best performing major asset class in the first half 2009, outperforming developed market equities, bonds and cash, according to ETF Securities.

Commodities have also been the best performing major asset class over the past ten years, with commodity returns as measured by ETFS Forward All Commodities DJ-UBSCI-F3SM Index up 270 per cent in the ten years to 30 June 2009.

This compares to a 27 per cent decline in the Dow Jones Euro Stoxx 50, a seven per cent decline in the FTSE 100, a 24 per cent decline in property and a 72 per cent return on bonds. 

This outperformance was achieved with an average annual volatility of 15 per cent, lower than the annual volatility of 22 per cent for the Dow Jones Euro Stoxx 50 and 20 per cent for the FTSE 100 over the same period.   

Investor flows into commodities surged during the first half of 2009, with AUM in ETF Securities’ ETCs rising by over USD6bn to USD12bn over the period. Gold and oil saw the largest investor demand in the first half, but over the past two months natural gas, industrial metals and agriculture have experienced the most investor inflows.

By 30 June 2009, net cumulative flows into all ETCs had surged 34 per cent beyond 1 July 2008 levels, highlighting the strength of investor interest in commodities.

In terms of investor positioning, diversified exchange-traded commodities such as ETFS All Commodities DJ-UBSCISM had the highest buy/sell ratio of any sector in 1H 2009, with the ratio rising to 5.8:1 by the end of the first half.

By sector, agriculture saw the highest buy/sell ratio, with a ratio of 3.5:1.  Although energy ETCs saw the second largest inflows of any commodity sector, their buy/sell ratio was one of the lowest, with a ratio of 1.8:1, as extremely strong oil inflows in the first four months of the year and surge of inflows into natural gas ETCs in the last two months of the first half were partially offset by outflows in May and June from ETCs tracking shorter-dated oil futures returns.  

Industrial metals were the strongest performing sector over the past six months, with ETFS Industrial Metals up 28 per cent in 1H 2009, led by a 58 per cent rise in ETFS Copper, a 30 per cent rise in ETFS Nickel and a 23 per cent rise in ETFS Zinc. ETFS Aluminium lagged the other metals, rising by 15 per cent in 2Q 2009 but only rising one per cent in 1H 2009 due to weak performance in 1Q 2009.

Performance in the energy sector was mixed with a 58 per cent rise in ETFS Gasoline, a 33 per cent rise in ETFS Brent and a 14 per cent rise in ETFS Heating Oil offset by a 42 per cent decline in ETFS Natural Gas. Flows into oil ETCs during 1H 2009 were unprecedented, rising to a peak of USD1.5bn by the end of April, 1,458 per cent more than total inflows during the same period last year. The flows began in late October 2008 as the oil price plunged through USD50/bbl down towards the USD30/bbl level. 

Since early May however, following a doubling of the spot oil price, flows into oil ETCs tracking short maturity oil futures returns such as ETFS Crude Oil, ETFS Brent and ETFS WTI have started to reverse, with investors moving into longer-dated oil ETCs such as ETFS Brent 1yr and into ETFS Natural Gas and ETFS Leveraged Natural Gas.

Agriculture saw similarly divergent trends with ETFS Softs up 14 per cent while ETFS Grains fell by five per cent. ETFS Softs (which tracks the futures returns of sugar, coffee and cotton) was pushed higher primarily by a surge in sugar prices, with ETFS Sugar up 32 per cent in 1H 2009. 

Nicholas Brooks, head of research and investment strategy, says: “Commodities were the best performing major asset class in the first half of 2009, outperforming developed market equities, bonds and real estate. Commodities have also been the best performing asset class over the past ten years. Remarkably, this performance has been achieved with lower volatility than most developed market equity benchmarks. 1H 2009 started off slowly for most commodities, with gold standing out as the strongest performer in the first part of the year as investors remained concerned about the state of the global financial system and economy. However, as global economic lead indicators began to pick up and credit markets began to function again, cyclically-oriented commodities such as industrial metals and energy began to perform extremely strongly.”

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