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Global commodity ETP assets rise to USD171bn in 2011 in challenging markets


Global commodity exchange traded product (ETP) assets rose by USD8bn to total USD171bn during 2011 in what were challenging market conditions for commodity ETP assets, according to ETF Securities’ quarterly review.

Numerous factors accounted for the strong performance of gold ETP assets over the year, such as the general investor trend of seeking out investments with defensive features in the prevailing uncertain financial and economic environment, fears of currency debasement, rising sovereign risk and diversification of emerging market reserves away from Euros and US dollars, and low real interest rates.

Gold ETPs dominate commodity ETP flows, with a rise in assets of over USD20bn – Gold continued to dominate commodity ETP assets and flows in 2011. By the end of the year, total assets in global gold ETPs stood at an all-time record of USD123bn, up 19% over end-2010 levels and making up 72% of total outstanding commodity ETP assets of USD171bn at the end of 2011. Of the USD20bn increase in global gold ETP assets, USD 9.6bn of the rise was due to net new investor flows and the rest by an over 10% rise in the gold price.

Non-precious metal commodity ETP assets decline in tandem with global growth – ETP flows excluding precious metals very closely followed the declining global growth trend, so that by the end of 2011, total outflows amounted to USD8.3bn. Energy ETPs witnessed the largest selling in 2011, with outflows of USD8.0bn. The flows were dominated by natural gas and oil, with each seeing USD4.7bn and USD3.3bn of outflows, respectively. Most of the outflows from natural gas ETPs took place in the first half of the year when the US benchmark Henry Hub natural gas spot price rose to the USD4.0-4.5/MMBtu range. However, as the price dropped rapidly through in the last quarter of 2011, investors started to build positions again, with nearly USD400m of inflows registered. In terms of agriculture ETP flows, the individual agriculture commodity with the largest inflows last year was wheat with USD178m of inflows, followed by grains with USD46m and cotton with USD29m of inflows. Most other agriculture ETPs were generally flat or saw modest outflows.

Nicholas Brooks (pictured), Head of Research and Investment Strategy, says: "It has been a difficult year for commodity ETPs, as slowing global growth and rising risk aversion caused investors to reduce allocations to cyclical assets and move into cash and G3 bonds. The downtrend was offset by the strong performance of gold which benefited from the general risk aversion. As we enter 2012, a myriad of risks remain, although recent signs of improvement in the US economy and an uptick in the global manufacturing cycle have started the year on a positive note, with ETP inflows broadening out and most commodity prices rising. Europe’s ability to deal with its sovereign debt crisis, the durability of the recent rebound of the US economy and China’s ability to engineer a soft landing will likely remain the main factors driving the performance of commodity ETPs this year."

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