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Growth of exchange-traded commodities to slow this year

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The overall growth of exchange-traded commodities will slow this year from 145 per cent in 2009 to 60 to 80 per cent in 2010, according to a report by Deutsche Bank.

This will be due largely to 2008 and 2009 representing the commodities space reaching critical mass, making further growth harder to achieve.

As of 5 March 2010, commodity exchange-traded products hosted EUR23.1bn, split roughly 50/50 between exchange-traded commodities and exchange-traded funds tracking commodity indices.

Historically, ETFs held the lion’s share, but Deutsche Bank says that is about to change with ETCs about to overtake them. This is due to decreasing demand for gold and increased interest in specific commodity return profiles.

The big winners in 2010 will be industrial metals and indices tracking the broad market, while Swiss domiciled ETFs tracking gold will continue to grow. In terms of trading, energy will remain a highly popular sub-sector, especially in light of a number of energy leveraged products being launched.

Precious metals flows are likely to slow in 2010 as these have now reached a fairly significant size. In addition, with the decrease of volatility in the equity markets, some gold flows are likely to be directed back to equity. The first two months of 2010 saw net outflows from UK based gold commodity ETPs and net inflows for Swiss based gold commodity ETPs.

Despite slowing flows, the gold commodity ETPs remain the biggest single commodity sub-segment (57 per cent), with overall commodity indices well below in second place (13 per cent) and broad agricultural indices in third place (five per cent). Given the current size of the precious metals sub-segment, it is likely that it will maintain its dominance in 2010.

Product launches in the first two months of 2010 were very strong, totalling 45 YTD 2010, compared with 66 for the entire 2009. Five existing providers came to market with new commodity ETP products.

Swiss managers launched 26 ETFs, primarily targeting long gold returns denominated in a number of currencies besides CHF, employing physical replication. EU providers launched ETC and ETN products targeting a wide range of non precious metals commodity benchmarks.

2009 saw net inflows in all six commodity sectors – agriculture, broad indices, energy, industrial metals, livestock and precious metals – totalling EUR9.7bn.

Overall commodity ETPs in 2010 YTD saw EUR631m of net inflows for the first two months of 2010, with outflows of EUR32m in agriculture and EUR67m in energy, primarily driven from brent oil (EUR31m) and WTI (EUR21m).

2010 YTD average monthly net inflows stand at EUR316m, 25 per cent lower than the respective number for 2009 of EUR425m.

Given the busy product launch calendar Deutsche Bank expects inflows to pick up over the second and third quarter of 2010. As more long and short products become available on a number of the dominant commodity ETP sectors (short precious metals, oil, agriculture), these products will increasingly find a home with institutional investors and active value traders looking for value as the year progresses.

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