Investors to increase allocations to commodities; ETCs preferred vehicle

Feb 14th, 2013 | By | Category: Commodities

ETF Securities, one of the world’s leading providers of exchange-traded commodities (ETCs), has conducted a survey which suggests that senior investment professionals across Europe are planning to increase their average allocation to commodities in 2013, particularly into industrial metals such as copper.

Investors to increase allocations to commodities in 2013

Investment professionals across Europe plan to increase allocations to commodities in 2013, largely via exchange-traded products. In the UK, Italy and Germany, investors favour industrial metals, especially copper.

The results were compiled from four surveys completed by 350 investment decision makers attending the ETF Securities annual commodity investor conferences across London, Milan, Frankfurt and Zurich.

In the survey, attendees were asked what their allocation to commodities was in 2012 and how they see that changing this year. Across Europe, the results show that over 40% of investors plan to allocate between 8-10% of their portfolios to commodities in the year ahead.

In addition, just under a third of those surveyed in the UK and Switzerland were most concerned about the European Sovereign debt crisis, whereas the US fiscal and budget ceiling issues were deemed a greater concern by Italian and German investors.

Nicholas Brooks, Head of Investment Strategy at ETF Securities, remains optimistic on the outlook for 2013. He said: “Global growth is showing signs of recovery, with the US and China leading the way. The monetary policy of major developed economies is expected to remain highly accommodative in 2013. Both of these factors are supportive of cyclical assets, with commodities standing out as key beneficiaries. Gold should remain a core holding for investors concerned about the potential for sovereign debt risk events in Europe and the US.”

The surveys showed that in the UK, Italy and Germany, investors favour industrial metals, especially copper. The growing interest in the metal is supported by latest flows into the ETF Securities physically-backed copper ETC, ETFS Physical Copper (PHCU), which showed net inflows of $28 million during the week of the 14 January to 21 January 2013, the largest weekly inflows since it was listed on 10 December 2010.

The survey also showed that 40% of the investors currently use exchange-traded products (ETPs), which encompass exchange-traded funds (ETFs), exchange-traded notes (ETNs) and ETCs, as their primary method of gaining their commodity exposure, followed by 20% through equities and the remainder via swaps and futures.

It is thought that the use of ETPs as key investment tools is set to increase in the future partly due to changing regulatory reform across the financial services industry. Examples include the recent ESMA guidelines on ETFs and UCITS, and the UK Financial Services Authority’s Retail Distribution Review (RDR), both of which are expected to increase the use of ETPs by advisors offering fee-based services.

Commenting on the current ETP industry, Matt Johnson, Head of Distribution for EMEA, ETF Securities said: “In 2013 the ETP Industry is going to have to adhere to a number of regulatory changes. For instance, there will be a shift in the range of products that are available to investors and how they can access them. However, saying that, you look at 2012 with $400 billion gains in assets under management to nearly $2 trillion and I see no reason why that won’t continue to increase in 2013. Commodity exchange-traded products in particular continue to see strong inflows as investor demand for hard assets increase and more investors discover ETPs as an easy and efficient way to access the asset class.”


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