ETPs that provide exposure to crude oil meanwhile had a mixed quarter. Investors initially cut their exposure by a net US$73 million in April and May, as further signs of slowing global growth emerged and concerns of imminent military activity in the Middle East abated somewhat.
Saudi Arabia, meanwhile, increased its oil output significantly during the quarter. A sharp correction in price may have helped to reverse the flow of money out of crude oil ETPs, and in June such products attracted net inflows of US$515 million.
De-risking drives outflows
Deteriorating economic and financial conditions in Europe combined with signs of slowing growth in the US and China, hit broad commodities and other cyclical assets during the second quarter. ETPs that track industrial metals such as copper – which attracted strong inflows through the first four months of the year – saw net outflows in May in June. Broad diversified commodity ETPs, such as those tracking the broad DJ-UBS and GSCI commodity indices, suffered US$1.1 billion in net outflows.
ETPs that provide exposure to agriculture – a sector that has seen five consecutive months of weakened demand – saw outflows of US$494 million during the quarter. Products which provide broad diversified exposure were particularly hard hit. Generally poor growing conditions for many crops are driving a number of key agricultural commodity prices higher, and it will be interesting to see if money starts to flow back into the sector next quarter.
“In an era of high government debt and unconventional monetary policy, investor demand for exposure to hard assets remains strong. We saw a general de-risking across asset classes during the second quarter and, naturally, cyclical assets such as commodities were particularly hard hit. Despite challenging macroeconomic conditions, demand for commodity ETPs held up well,” said Nicholas Brooks, head of research and investment strategy at ETF Securities.
“Gold continues to see particularly strong demand as concerns about European sovereign and financial risk, possible further US dollar currency debasement and a lower price attract investors. Oil has also seen a pick-up in demand as a number of investors view the sharp fall in the oil price as a longer term buying opportunity,” he added. “The outlook for the second half of this year will continue to be highly dependent on global growth and risk appetite trends, with government and central bank policy likely to continue to play a larger than usual role driving the broad market direction.”