EXCHANGE TRADED PRODUCTS
Figure 2: Global Commodity ETF & ETP Asset Growth Assets US$ bn
100 120 140 160 180 200 220 240
20 40 60 80
0 2005 2006 2007 2008 2009 2010 July 2011 Source: BlackRock Investment Institute – ETF Research, Bloomberg. Note: Data as at end July 2011.
of ETF Research and Implementation Strategy with BlackRock.
Commodities Attract Commodity markets continue to
attract investors for broad-based exposure to commodity indices. And although the past couple of months have been difficult for all growth- sensitive assets, commodities are holding up better than many. The Financial Times recently reported that European investors have been deserting government bond ETFs and heading for the hard assets held in commodity ETFs amid Europe’s ongoing sovereign debt crisis. As a result, assets held in commodity ETFs (funds and products) have surpassed those held in fixed income ETPs for the first time, according to research by Lyxor.4 Precious metals are the one
area where investors have taken commodity ETPs to heart. They represent a hefty US$160 bn of the total invested in commodity ETF/ ETPs (Figure 2). However, Nizam Hamid, head
of ETF strategy at Lyxor, recently told the FT that strong inflows into commodity ETFs were not solely a reflection of investors’ appetite for gold and other precious metals. “I think this shows the attraction of the ETF wrapper as it allows investors to have easy access to asset classes
44 September 2011
Agriculture ($16.3) Alternative ($0) Broad ($24.7) Energy ($11.9)
Livestock ($0.2) Industrial Metals ($5.1) Precious Metals ($160.2)
ETF/ETP Total: $218.5 bn (# 792)
# Products 1,000
200 400 600 800
0
such as gold and to broad commodity exposures that it would not otherwise be easy to obtain,” said Hamid. Aside from the precious
metals sector, its the big themes which are likely to dominate the commodity ETF space in the years ahead – reflecting the ongoing fundamental shifts in the global economy. For example, growth in China, rising commodity prices and the emergence of a middle class in emerging markets are themes that are reflected in the range of ETFs provided by Global X– a relatively new entrant
to the list of ETF fund providers. Global X expects sustained strength in commodity prices as reflected in their aluminium, copper miners, oil, lithium, gold explorers, silver miners and uranium ETFs.
Going Forward Weakening global growth indicators, together with reduced
risk appetite stemming from spreading sovereign risk in Europe, have led to investors cutting back their risk positions. The two main factors now driving commodity ETP performance and flows are perceptions of the sustainability of the global economic recovery and whether sovereign debt risks can be contained, according to ETF Securities.
“... this shows the attraction of the ETF
wrapper as it allows investors to have easy access to asset classes”
Broad diversified and cyclical metal commodity ETPs may
benefit the most if it turns out the slowdown in global growth in the second quarter was a temporary ‘soft patch’, saysNicholas Brooks, Head of Research and Investment Strategy at ETF Securities. “Gold ETPs, on the other hand, may benefit most if Europe does not quickly find a convincing solution to its sovereign debt problems or if a renewed need for quantitative easing to offset slowing growth rekindles US dollar debasement concerns.” •
Commodities Now
Footnotes 1. ETF background: ETF Research and Implementation Strategy BlackRock, May 2011.
2. ETF Securities’ Global Commodity ETP Quarterly, Q2 2011.
www.eftsecurities.com
3. Led by Deborah Fuhr, Managing Director, the BlackRock team produces the ETF Landscape reports, a comprehensive series of weekly, monthly, and quarterly ETF market commentaries as well as handbooks covering all ETFs and ETPs from all 178 providers (as at 31 March 2011).
4. At the end of July, commodity ETPs listed in Europe had assets of €42.8bn while fixed income ETPs had assets of €41.4bn, according to Lyxor.
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