Commodity exchange traded products were dumped in the last month of 2011 as investors returned to the equities markets. Still, with investor confidence rising, traders are beginning to pick up riskier commodity plays again, according to a report.
Powershares DB Commodity Index Fund ETF (DBC) is up 2.4% year-to-date.
According to BlackRock (BLK), commodity ETPs lost $2.5 billion in December, with U.S.-listed precious metals ETPs experiencing outflows of $2.4 billion for the month, reports Claire Milhench for Reuters. In contrast, global equity ETPs brought in $10.5 billion, with $12.2 billion going into North American equities.
Nicholas Brooks, head of research and investment strategies at ETF Strategies, said that the outflows in precious metals were due to profit taking after the strong yearly performance, along with a stronger U.S. dollar. The S&P GSCI Gold Index was up 9.3% for 2011, despite dropping 10.5% in December.
“Gold has tended to have an inverse relationship with the dollar so dollar strength could have driven some outflows, but it was U.S. investors who reacted more,” Brooks said in the Reuters article.
Steven Cohen, iShares head of investment strategies in EMEA, BlackRock, believes the inflows into large-cap U.S. equities were a result of improving sentiment on better U.S. economic data. Additionally, investors’ appetite for risk could support commodities in January, Cohen said. [What’s in Store for Silver ETFs?]
“In the first week of January we saw the largest inflows across the board in just over a month, so some change in sentiment is taking place – the question is whether this is sustainable,” Brooks said in the article. “Investors are slowly increasing their weights in commodities as an asset class in the hope that the rebound in lead economic indicators proves more than a blip.”
In energy, crude oil ETFs are gaining strength as investors nervously watch the geopolitical situation in Iran. Natural gas, though, remains depressed on “a particularly bearish set of fundamentals due to record inventories and a warmer than usual start to winter in the northern hemisphere,” Brooks added.
- SPDR Gold Trust (GLD): up 5.6% year-to-date.
- Powershares DB Precious Metals Fund ETF (DBP): up 6.1% year-to-date.
- United States Oil Fund (USO): up 1.8% year-to-date.
Powershares DB Commodity Index Fund ETF
For more information on commodity funds, visit our commodity ETFs category.
Max Chen contributed to this article.