ETF Securities (US) LLC (ETFS) has launched the Global Commodity ETP Quarterly Report in the United States providing the US investment community with a comprehensive overview of trends in the global commodity exchange traded products markets.
William Rhind (pictured), Managing Director of ETFS, says: “We are extremely pleased to share what we believe is the state-of-the-art overview of trends in our industry with our clients and investors in the United States. Our mission is for ETF Securities to become the leading provider of commodity ETPs in the United States. We remain committed to serve our clients and investors here with the best information available in the commodity ETP space.”
According to the report, exchange traded product (ETP) assets rose USD3.7bn in Q3 2011 to reach a record quarterly high of USD178.2bn, a remarkable achievement given the substantial financial and economic turbulence during the quarter. The strong headline figure, however, masks highly divergent trends at a sector level, with precious metal ETP assets surging by USD11.8bn during the quarter and all other commodity ETP sectors seeing assets fall by USD8.1bn. Gold was in fact the only bright spot, with a combination of price gains and new investor inflows pushing gold ETP assets up USD13.7bn to a record quarter-end high of USD121.7bn.
Global commodity exchange traded product (ETP) assets totalled USD178.2bn at the end of Q3 2011, boosted by strong investor demand for precious metals ETPs.
Gold ETPs accounted for most of the growth in precious metals ETP AUM during the quarter. Almost all of the inflows occurred in July, when the combination of the US budget ceiling stand-off, anticipation of Standard & Poor’s removal of the US’s AAA sovereign rating, and deteriorating sovereign conditions in Europe drove gold ETP inflows up USD5.6bn, the second largest monthly increase on record. Around 70% of these inflows were into US listed ETPs, indicating US investors were particularly shaken by the anticipate US sovereign downgrade and budget stand-off. The surge in gold ETP demand in July 2011 is surpassed only by the record-breaking USD7.1bn increase in May 2010 when Greece’s debt problems changed investors’ perceptions of the long-term viability of the Euro. In August and September most the net gold buying was in European listed physically-backed gold ETPs (US ETPs saw modest net outflows), indicating growing sovereign contagion to Italy and Spain and rising European banking sector risks took over as the key driver of gold demand during the final two months of the quarter.
Weakening global growth and rising concerns about sovereign debt caused assets in almost all non-precious metal commodity ETPs to fall as investor de-risking drove prices lower and caused a re-direction of investor flows into cash and G3 government bonds(4). In the year to September, non-precious metal ETPs experienced net outflows of USD5.6bn. Broad diversified commodity ETPs, after seeing extremely strong inflows in the first four months of the year when global growth was rising and risk appetite was strong, have seen the largest outflows, with USD1.4bn leaving the funds in Q3 2011. Agriculture saw the next largest outflows of USD692m, followed by energy with USD586m of outflows (concentrated in natural gas and oil) and finally industrial metals with USD275m of outflows.
Nicholas Brooks, Head of Research and Investment Strategy, says: “It has been a turbulent year for commodity ETPs, with rising growth and risk appetite in the first few months of the year driving strong demand for more cyclical commodities, and then the downturn in global growth and falling risk appetite driving these flows out over the summer and through the third quarter. The one constant has been strong demand for precious metals ETPs – particularly gold – as investors have sought out physically-backed gold ETPs as a hedge against currency debasement risks and the generalised rise in European sovereign and financial sector default risks. With developed economy sovereign risks and the need for low to negative real interest rates likely to remain in place well into 2012, demand for physically-backed precious metals ETPs is likely to remain well supported. As the sovereign debt issues are addressed and global growth regains its footing, broad commodity ETP flows may increase as well. ”
