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Commodity ETC assets triple to USD17bn

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Commodities bounced back strongly this year with the ETFS Forward All Commodities DJ-UBSCI-F3SM up 20 per cent year-to-date and 268 per cent over the past ten years, according to ETF Securities.

ETFS Industrial Metals was the best performing ETC, with YTD growth of 67 per cent.

Industrial metals significantly outperformed developed market equities, outperforming the Dow Jones Euro Stoxx 50 by 37 percentage points since the start of 2009.

Industrial metals have also outperformed bonds, cash and real estate over the same period as the global recovery has become more entrenched and market appetite for plays on the recovery has accelerated.

The precious metals sub-sector was the next best performing major sector, with ETFS Physical Silver, ETFS Physical Platinum and ETFS Physical Palladium all returning over 60 per cent YTD.

Commodities remain the best performing major asset class over a ten year horizon, with ETFS Forward All Commodities DJ-UBSCI-F3SM registering cumulative growth of 268 per cent, compared to a ten per cent rise in the Dow Jones Euro Stoxx 50, a 13 per cent rise in the FTSE 100, a six per cent rise in property and a 75 per cent return on bonds. This outperformance was achieved with lower average annual volatility than equities over the same period.

2009 has been a record breaking year for commodity inflows, with assets under management in ETF Securities’ ETCs and ETFs rising over USD11bn to USD17bn over the past 12 months. Physical gold and long natural gas ETCs have seen the largest investment demand YTD, with inflows of USD2bn and USD1bn respectively since the start of 2009. 

In terms of investor positioning, agriculture ETCs such as ETFS Agriculture DJ-UBSCISM had the highest buy/sell ratio of any sector in the 11 months ended November with a ratio of 3.2. This is consistent with steady inflows into agriculture ETCs in 42 of the 48 weeks to end-November.

Industrial metals had the next strongest buy/sell ratio at 2.7, coinciding with the sharp rise in industrial metal prices in 2009.

Although energy ETCs have seen the second largest inflows in 2009 YTD, their buy/sell ratio was one of the lowest at 1.8 as extremely strong oil inflows in the first four months of the year and the surge of inflows into natural gas ETCs since May were partially offset by outflows in May and June from ETCs tracking shorter-dated oil futures returns.   

Industrial metals were the strongest performing sector in 2009, up 67 per cent to the end of November. Gains were led by a 118 per cent rise in ETFS Copper and an 81 per cent rise in ETFS Zinc. ETFS Aluminium remained the weakest of the industrial metals, but still managed a 24 per cent return in the 11 months ended November. Flows into industrial metals accelerated in 2009, taking industrial metal assets to almost twice their previous peak level seen in H1 2008. Robust Chinese demand, coupled with stronger manufacturing activity in developed economies, has underpinned investor interest in industrial metals.  

Within precious metals, the best performing commodities were metals tied to the industrial cycle, with ETFS Physical Palladium up 96 per cent, ETFS Physical Silver up 68 per cent and ETFS Physical Platinum up 61 per cent.

Gold prices reached fresh historic highs in 2009, breaching the USD1,200/oz mark by the start of December. Interest in physical gold holdings was extremely strong, up 1.9 million ounces (31 per cent) in the 11 months to the end of November. This marks the second year of rapid growth in physical gold holdings, which have more than doubled (up 4.2 million ounces or USD5bn at current gold prices) since the start of 2008.

Total assets in ETF Securities’ physically-backed gold ETCs stood at USD9.5bn by the end of November 2009, making them the largest ETF/ETC holdings in Europe and the second largest ETC/ETF holding in the world. Other physical precious metal ETC holdings also posted new historic highs in 2009, with physically-backed silver, platinum and palladium ETCs seeing their metal holdings (in ounces) reach the highest levels since inception by the end of November.  

The energy sector saw mixed performance over 2009, with a 74 per cent rise in ETFS Gasoline and a 44 per cent gain in ETFS Brent 1mth offset by a 57 per cent drop in ETFS Natural Gas. In H1 2009 sharp falls in oil prices attracted almost USD1bn of inflows into long oil ETCs between January and May. There was some profit taking on these positions subsequently, coinciding with USD1.4bn in inflows into long natural gas ETCs. These flows suggest some rotation in investor positioning within the sector as natural gas prices have underperformed their oil counterparts.

Agriculture saw a sharp divergence in returns with ETFS Softs up 34 per cent in the 11 months to the end of November, compared to a one per cent gain in ETFS Grains. ETFS Softs were boosted by a 57 per cent rise in ETFS Sugar and a 29 per cent rise in ETFS Cotton. ETFS Soybeans was up 25 per cent while ETFS Wheat was down 20 per cent and ETFS Corn was down nine per cent. Agriculture saw the most consistent and third largest inflows behind energy and precious metals in 2009 totalling over USD1bn YTD. Historically low levels of inventories, together with a number of weather-related crop disruptions this season, have helped underpin investment demand in agriculture in 2009.

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