No Surprise: Commodity ETF Assets Dwindled in Q4

Amid an ongoing rout in commodities prices during the latter stages of 2015, some commodities exchange traded products continued bleeding assets.

Gold ETFs were pressured last year amid speculation the Federal Reserve is preparing to raise interest rates, which has pushed the dollar higher. Higher interest rates would diminish gold’s attractiveness since the precious metal does not pay interest like fixed-income assets. Investors yanked $2.2 billion from the SPDR Gold Shares (NYSEArca: GLD) last year, including $1.4 billion in the last three months of the year. [Doubters in Gold Rally]

“Market caps of commodity ETFs slid 8% in the fourth quarter, in large part thanks to gold’s decline in the face of an interest rate hike from the Federal Reserve. It appears that hedge funds’ net long holdings also slid as much as 7% from the third quarter. ‘Bottom line: for a third consecutive year, commodities significantly underperformed all other asset markets and have started 2016 on an even weaker footing,” Teresa Rivas reports for Barron’s, citing Citigroup.

One commodities ETF that has defied the outflows trend is the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures. Although USO lost more than 40% last year, investors added more than $3 billion in new assets to the ETF, including more than $1.4 billion during the last three months of the year.

OPEC has kept up production to pressure high-cost rivals, such as the developing U.S. shale oil producers. The International Energy Agency expects it will take several years before OPEC can effectively price out high-cost producers. [Oil ETFs Face World-Record Supply Glut]

“Gold has started the New Year once again caught in a tug-of-war between strong US labor data and choppy global markets. Much like in August, when a sharp decline in Chinese equity prices sparked turmoil in financial markets and strong safe-haven buying, gold prices have climbed YTD despite strong USdata which might otherwise push prices lower (on hawkish Fed expectations),” said Citigroup by way of Barron’s.