Commodities were one of the high-flying assets to start 2022 amid rampant inflation fears, but prices are starting to come back down to earth. While smaller investors may be heading for the exits, large investors are coming in to purchase commodities.
The inflation narrative could be dissipating after the Consumer Price Index (CPI) rose less than expected during the month of July. At the same time, a mass exodus from commodity exchange traded products (ETPs) was happening, but is the outflow too much too soon?
“Investors pulled record amounts of money out of commodity exchange traded products (ETPs) in July, but industry observers said the rush for the exits ignored some long-term factors,” the Financial Times reported.
“About $11.2bn was pulled from commodity ETPs globally, surpassing the combined outflows of $9.7bn recorded in May and June and marking the third month in a row of net outflows, according to data from BlackRock,” the report added further. “The previous record was set in April 2013 when investors withdrew $9.5bn.”
In the meantime, large investors saw this as an opportunity. Even as the inflation narrative starts to turn into recession fears, commodities are likely to always be in demand, and large investors are sensing this as well.
“In commodities you always have two views. Someone will be going short and someone will be going long. At the moment, institutional investors are increasing their capital allocation to commodities,” said Alessandro Sanos, global director of sales strategy and execution for Refinitiv, in the Financial Times report.
Commodity ETFs to Play
For retail investors, this could be an opportune time to get commodities exposure at a good value. For investors looking for commodity ETFs exposure, the abrdn Standard Bloomberg All Commodity Strategy K-1 Free ETF (BCI) could be a prime alternative.
BCI seeks to provide a total return designed to exceed the performance of the Bloomberg Commodity IndexSM, which is calculated on an excess return basis — the first of its kind since its inception in the first quarter of 2017. BCI is actively managed, giving investors dynamic exposure to the commodities market, and it seeks to provide a total return designed to exceed the performance of the index.
With BCI’s net expense ratio of 25 basis points, it also offers a cost-effective solution to providing investors with exposure to commodities. Additionally, there are no K-1 tax documents issued, which is a requirement for investments in partnership interests.
For more news, information, and strategy, visit the Commodities Channel.