Commodity ETPs hit $200 billion as investors seek hard assets

Jan 8th, 2013 | By | Category: Commodities

Commodity ETP assets rose to a year-end record high of $199.8 billion in 2012, an increase of $29 billion compared to the end of 2011. Commodity ETP assets have nearly doubled since the end of 2009 and have increased nearly seven-fold over the past five years as investor demand for hard assets and familiarity with commodity exchange-traded products have increased.

Commodity ETPs hit $200bn as investors seek hard assets

Gold and silver ETPs experienced the largest increases in 2012, with assets rising by $24 billion and $2.7 billion respectively.

Gold ETPs saw the largest increase, with assets rising $24 billion to a year-end all-time high of $146.6 billion. Silver ETPs saw the next largest increase in assets, with assets rising $2.7 billion to $17.7 billion.

Diversified broad commodity ETPs (those that track broad commodity index benchmarks) were the next most popular category of commodity ETP, with assets rising $1.0 billion over end 2011 levels to $16.2 billion.

According to Nicholas Brooks, Head of research at London-based ETF Securities, one of the world’s leading commodity ETP providers, “the nearly $30 billion rise in commodity ETP assets to $200 billion in 2012 was primarily driven by strong investor demand for gold and silver ETPs to hedge against currency debasement as the world’s major central banks made clear their intention to extend current asset purchase programmes.”

FEATURED PROVIDERS

The following are all leading
providers of commodity ETPs,
based on a combination of assets
under management and breadth
of product range:

Europe
ETF Securities
db-X trackers
Lyxor
iShares
RBS Market Access
Source

US
SPDR (GLD)
PowerShares
US Commodity Funds
iPath
iShares

Overall, 2012 was characterised by a combination of fluctuating investor views on the global growth and sovereign debt outlook. In the first quarter (Q1) of 2012, rising growth expectations caused investors to increase weightings in more cyclical commodities. However a weakening of US and China growth indicators and increased concerns about Europe’s sovereign debt issues led to net outflows from commodity ETPs in Q2.

In Q3 and Q4 investor demand for gold ETPs soared as investors sought to hedge against worst case US fiscal cliff and debt ceiling scenarios as well as an intensification of central bank quantitative easing policies. The second half of the year also saw a strong pick-up in demand for more cyclical commodity ETPs, such as copper with inflows $115 million in Q4, as US and China economic indicators began to improve.

So far in 2013 there appears to be a continuation of the trend seen in Q4 2012, with improving US and China growth indicators adding demand for cyclical commodity exposures, such as base metals, broad commodity exposures and energy. However, with a looming US debt ceiling fight and concerns about deteriorating growth and debt conditions in Europe, demand for perceived risk hedges, such as gold, remains high.

ETF Securities’ Brooks says “demand for gold ETPs remains strong as investors hedge against worst-case US budget ceiling outcomes and potential major reserve currency debasement scenarios as US, European and Japan government debt levels continue to rise.  The demand for broad commodity, industrial metal and white precious metal ETPs will depend very much on whether the US averts a major debt crisis over its self-imposed debt-ceiling and whether the improvement in US and China economic growth proves to be sustainable.”

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