Strong first quarter appetite for commodity ETPs

Commodity exchange-traded products (ETPs) have led the rebound in commodity investment since the start of the year with inflows rising by $7.5bn, the largest quarterly rise in almost two years, according to ETF Securities’ Global Commodity ETP Quarterly report.

A combination of higher commodity prices and increased demand for ETPs boosted assets in commodity ETPs to $189bn globally, states the report. But while inflows into ETPs have traditionally been concentrated in precious metals, especially gold, the first quarter of 2012 saw a more broad-based allocation into commodity ETPs.

According to the report, an improved economic outlook in the US and a reduction in immediate sovereign risks in Europe helped revive investor appetite for a wider range of commodity exposures, with $3.1bn flowing into non-precious-metals commodity ETPs – the largest non-precious-metals inflows in more than two years.

According to a commodities research report published by Barclays Capital on April 17, overall investment flows into commodities rebounded in the first quarter of the year, with $6.9bn fresh inflows into the asset class. But while it was the strongest quarter for flows in a year, it remains a far cry from the $19bn recorded in the first quarter of 2011, as well as the average quarterly inflows of $11bn over the past five years, the report says.

“What we have seen so far this year is a pick-up in investment flows into commodities following a very weak year,” says Roxana Mohammadian-Molina, commodity research analyst at Barclays Capital in London. “The trend has been concentrated on the ETP side – in particular into precious metals and energy – rather than on the index swaps. On the index swap side, it’s not really a decline but people moving from the traditional long-only indexes to more long-short or active approaches.”


This article was first published on Risk

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