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European investors have significantly increased their commodity exposure, with $1.3 billion going into broad commodity ETFs in the first quarter of 2017, according to analysis from European ETF provider Source.
The strong net inflows is quickly approaching the $1.8 billion invested in broad commodity ETFs during the whole of 2016, which was itself a strong year for commodities.
Chris Mellor, product specialist at Source, commented: “It’s clear that investors wanting to diversify their portfolios are turning to commodities. That makes sense given the low correlation commodities have with equities and bonds, and especially now that some equity valuations may look stretched.”
The vast majority of this year’s broad commodity flows have been into ETFs tracking the Bloomberg Commodity Index. Source’s own Bloomberg Commodity UCITS ETF (LON: CMOD) raised over $1bn since its launch in January 2017, making the fund the most successful ETF launch in the past five years.
The index, denominated in US dollars, is well diversified and contains components in the energy (29.1%), grains (23.0%), industrial metals (18.5%), precious metals (16.5%), softs (6.6%) and livestock (6.3%) sectors. Commodities are weighted two-thirds by liquidity and one-third by global production with caps (max 15%) and floors (min 2%) to the exposure of any one commodity in the index, resulting in a more balanced index weighting. Current top exposures include gold (11.9%), copper (7.9%), natural gas (7.8%), corn (7.6%) and Brent Crude Oil (7.4%). (Data as of 31 March 2017)
Investors interested in the fund now have a choice between GBP and USD trading currencies, both now available on the London Stock Exchange. With a total cost of only 0.40% per annum (an ongoing charge of 0.19% and swap fee of 0.21%), the fund is cheaper than other broad commodity ETFs.
Mellor continued, “Investors have been crying out for a more competitively priced, simple commodity ETF. Prior to this launch the lowest cost commodity ETF in Europe had an ongoing charge of 0.35% and a total cost of 0.75% per annum, almost twice as much as our fund.”