Advisors Shifting Sentiment on Commodities | ETF Trends

Engagement on VettaFi’s ETF platforms can serve as a great indicator of advisor and end investor sentiment, as our ETF lists are sought after for research purposes. In March 2023, there were some compelling trends worthy of further investigation. For instance, commodities ETFs represented just 2% of U.S.-listed ETF assets at the end of the first quarter of 2023, and the asset category had $361 million of net outflows in March.

However, three of the 10 most-researched ETF lists were focused on commodity investment styles, more than in February. Before we discuss them further, it is notable that five of the top 10 lists in March 2022 were commodity-focused. However, this was amid Russian’s initial invasion of Ukraine, when agriculture, nickel, and wheat ETFs like the Teucrium Wheat ETF (WEAT) were being highly sought out. 

This time around, the uncertainty caused by regional banking crisis coupled with rising energy prices was likely the major driver. Advisors sought to learn more about gold, crude oil, and natural gas ETFs. 

The price of gold recently climbed 9% higher year-to-date as of April 11 amid the collapse of U.S. regional lenders as investors sought a safer haven. Unlike some other commodity investment styles, there’s no shortage of widely held gold ETFs. Indeed, our gold list consists of 20 products, eight with more than $500 million in assets. The SPDR Gold Shares (GLD) is the largest, with $60 billion in assets. However, the fund has a higher expense ratio (0.40%) than most of its peers, making it less appealing for advisors seeking a strategic allocation. Less expensive, yet still widely held, alternatives include the iShares Gold Trust Micro ETF (IAUM) and the SPDR Gold MiniShares (GLDM), which charge 0.09% and 0.10%, respectively. The lower fees helped IAUM and GLDM modestly outperform GLD to start the year. GLD pulled in more than $800 million in assets in March, while GLDM and IAUM had net outflows.  

Meanwhile, higher energy prices likely played a role in the strong engagement with crude oil and natural gas ETFs. “Markets are anticipating rebounding demand from China and improving jet fuel consumption as the recent cuts from OPEC+ members lowers supplies,” explained Stacey Morris, head of energy research at VettaFi. “Consensus price forecasts for Brent and WTI point to strengthening prices over the course of this year and higher average prices in 2024 compared to 2023. Similarly, after a challenging start to 2023, U.S. benchmark natural gas prices are expected to improve over the course of this year and see a higher average price in 2024 compared to 2023.” Forecasts are expecting higher prices than what is currently reflected by the futures market, which is what crude oil and natural gas ETFs track. 

The largest crude oil ETF with $1.7 billion in assets is the United States Oil Fund (USO), which, as of early April, had assets spread across WTI futures contracts ranging from June to December 2023. USO was down 0.5% to start the year. The second-largest is the ProShares Ultra Bloomberg Crude Oil (UCO), which managed $762 million. UCO is a two times leveraged ETF that had assets split between WTI futures contracts for July 2023, December 2023, and June 2024. UCO was down 5.6% for the year. Even with commodities ETFs, it pays to look inside.  

The United States Natural Gas Fund (UNG) and the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) are the two largest natural gas futures-based ETFs, with $1.2 billion and $1.0 billion, respectively. BOIL, like UCO, is two times leveraged, which has caused it to underperform UNG in 2023.

Outside of commodities, Treasuries ETFs were also popular subjects of research on VettaFi’s platforms in March as another safe haven. BlackRock is the biggest beneficiary of the due diligence, as the firm offers four of the five largest of these ETFs, led by the iShares 20+Year Treasury Bond ETF (TLT) and the iShares 7-10 Year Treasury Bond ETF (IEF). Taking on interest rate risk has been rewarded as bond yields have recently fallen.   

For more news, information, and analysis, visit the Commodities Channel.