Commodity ETPs turn the corner in Q3

Total assets in commodity ETP (Exchange Traded Products) assets rose by $8.4bn to $135.3bn, marking the first quarterly rise since Q3 2012, according to ETF Securities.

In Q3 2013, the rise was driven by a combination of price increases and the largest quarterly inflows into non-gold commodity ETPs since Q1 2012.

Key commodity ETP flow trends in Q3 2013 include:

• Commodity ETPs excluding gold saw $1.9bn of inflows, more than compensating for the outflows in Q2, and the largest quarterly inflows since Q1 2012.

• Including gold, global commodity ETPs saw $2.3bn of outflows in Q3 2013, a substantial improvement compared to the record $19.6bn of outflows in Q2 2013.

• Gold ETPs continued to see outflows in Q3. However outflows moderated substantially compared to the record outflows seen in Q2 2013, with outflows slowing to $4.2bn compared to record outflows of $19.6bn in Q2 2013. On a monthly basis, gold outflows have been moderating at a relatively steady pace since peaking at $8.7bn in April 2013.

• Diversified broad commodity ETPs saw the largest inflows in Q3, with $779m of net inflows during the quarter, the biggest increase since Q3 2012. Continued steady improvement in the US manufacturing sector, increasing confidence that China will maintain healthy economic growth and tentative signs of improving growth in Europe and Japan, together with perceived attractive prices and ample global liquidity are likely to be the main factors drawing asset allocators back to commodities.

• Silver ETPs saw the next largest inflows in Q3 2013, with $707mn of net inflows over the quarter. After seeing a more than 50% decline in the silver price from its peak, it appears that investors view silver as one of the better value ways to gain exposure to the turn in the global industrial cycle. As around 50% of silver demand is from industry, the silver price has historically had a relatively strong positive correlation with manufacturing lead indicators. Its hybrid nature as both an industrial metal and as a store of value “hard currency” like gold appeals to many investors who recognize we are experiencing a cyclical pick-up in growth, but remain concerned about growing developed country debt levels and continued risks of currency debasement stemming from extraordinarily easy monetary policies.

Nicholas Brooks (pictured), head of research and investment strategy at ETF Securities said: “The rise in investors’ allocations to commodities reflects a general improvement in investor sentiment towards the asset class as the global industrial cycle has picked up, confidence in China’s growth prospects have improved and the prices of a number of key commodities have dropped to perceived attractive accumulation levels. Assuming the global manufacturing revival continues, and US and European political issues do not derail the general improvement in the global economic outlook, we believe that Q3 2013 potentially marks an important positive turning point for commodities.”

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