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ETF Securities reports fifth consecutive week of inflows into oil ETPs

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James Butterfill, Head of Research & Investment Strategy at ETF Securities, reports that oil ETP inflows of USD73 million last week represented the fifth consecutive week of inflows which total USD140 million, representing 9 per cent of assets under management.

Investors have seen the recent oil price weakness (-8.6 per cent ytd), as a consequence of poor discipline to the agreed OPEC production freezes and record exports of oil from the US, as an opportunity to buy on weakness, he writes.

“Inflows over the longer term have not recovered to the stellar levels seen in 2015, we believe this reflects investor’s concerns over technological improvements in the tight oil market in the US, where marginal costs of production have fallen to competitive levels relative to OPEC, effectively challenging OPEC as the new swing producer. We maintain our view the upside to the oil price is limited to USD55/bbl and we will continue to see poor compliance to the agreed OPEC production freezes.”

Robotic ETPs continue to see robust inflows, Butterfill writes, with inflows of USD20 million last week and USD206 million for this year so far (nearly 100 per cent of AuM). “Since the launch in October 2014 we have not seen a single week of outflows, indicating that investors see Robotics as a long-term investment. Other thematic styles such as Cyber security are garnering similar attention with inflows of USD56 million year to date.”

Gold ETPs saw outflows last week of USD43 million, although net flows year to date remain positive at USD503 million. Gold has risen 7.3 per cent year to date, outstripping most developed market equities and bonds. Other precious metals such as silver and palladium have risen 11 per cent and 18 per cent respectively this year.
Butterfill writes: “We believe the mid-year fairvalue of gold is USD1300 due to heightened worries over fiscal and policy uncertaintycoupled with inflationary fees. The biggest risk to gold is aggressive monetary policy tightening, pushing real interest rates into positive territory.”

ETF Securities writes that despite the signing of Article 50, there was little activity in GBP related ETPs, with minor outflows of USD0.4 million. “For the full year, inflows into GBP long ETPs stand at USD20 million, representing a 33 per cent rise in AuM, since the EU referendum in June 2016 we have seen a 200 per cent rise in long GBP ETPs. This suggests that investors are adopting a contrarian position relative to the futures market where short positions on GBP are close to their all-time highs.”

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