Investors dump gold ETPs, seek growth assets-BlackRock

Thu Mar 7, 2013 6:57am EST

Related Topics

* Exodus from gold ETPs weighs on commodities complex
    * Gold outflows could reverse if eurozone fears revive
    * Energy equity ETPs in favour, but crude oil ETPs shunned

    By Claire Milhench
    LONDON, March 7 (Reuters) - Investors pulled $5.6 billion
from gold exchange-traded products (ETPs) in February after poor
performance by the yellow metal, but appetite for riskier,
growth-oriented industrial metals ETPs remained intact.
    In February, the gold price dropped for the fifth
month in a row, with the S&P GSCI Gold Index off 5.04 percent.
The world's largest gold-backed ETP had its biggest monthly
outflow since inception as investors sought better returns.
 
    The exodus from gold pulled down the entire commodities ETP
complex, global data from BlackRock showed, as the gold segment
accounts for some 70 percent of total commodity ETP investments.
    Some $5.1 billion left commodities ETPs as inflows to
industrial metals and broad basket commodity ETPs failed to
offset the gold meltdown. 
    ETPs, an easy route into commodities for investors, include
exchange-traded funds, exchange-traded commodities and
exchange-traded notes. All trade on a stock exchange and their
value is linked to the underlying assets.
    The outflows from gold represent the category's largest
outflow since the first gold ETP was launched, said Dodd
Kittsley, global head of ETP research at BlackRock. Gold ETP
outflows have now reached $6.8 billion in the year to date. 
    "We attribute this to several factors, including the recent
weakness in spot gold prices, a growing sentiment among some
investors that monetary tightening from the U.S. Federal Reserve
may occur earlier than originally expected, a stronger U.S.
dollar, continued investor demand for equities and a shift away
from safe haven assets," he said.
    To put the $5.6 billion in outflows into perspective, this
still represents less than 4.5 percent of total assets invested
in gold ETPs, which currently stand at $128.2 billion, added
Russ Koesterich, BlackRock's global chief investment strategist.
    
    TACTICAL SWITCH
    "Tactical investors have been paring back their positions in
gold but in relative terms the outflows are not that huge,"
agreed Nicholas Brooks, head of research and investment strategy
at ETF Securities, an issuer of ETPs.
    He believes that gold outflows could reverse given the
inconclusive results of Italy's elections, which have increased
concerns about Europe's ability to maintain unpopular austerity
budgets in the face of rising unemployment and social unrest.
 
    "If there are any indications that some European economies
are going to backtrack on their debt plans we could see a
negative reaction by the bond markets and a move back into gold
as a safe haven," Brooks said. 
    He added that the net speculative positioning in gold
futures is now at end-2008 levels, which could serve as an
attractive entry point for some investors. 
    Industrial metals and broad commodity ETPs attracted inflows
of $125 million and $113 million respectively, and white metals
such as silver and palladium continued to do well. 
    "As investors increasingly expect a better growth scenario,
they also expect the industrial usage of these metals to grow,"
said Kittsley. 
    Brooks noted that copper and nickel ETPs had also proved a
draw. "Investors have by no means given up on commodities -
they've been rotating away from the more defensive assets into
the more cyclically geared assets," he said.
    But energy commodity ETPs failed to benefit from this switch
to more growth-oriented assets, with outflows of $218 million.
This reflected a fall in oil prices with the S&P GSCI Crude Oil
index down 6.11 percent for the month. 
    U.S. crude oil prices came off after domestic production and
inventory levels continued to build. Meanwhile, February's OPEC
crude oil output was up for the first time since October with
higher exports from Iraq and a slight increase in supply from
Saudi Arabia. 
    It was a different story for energy equity ETPs, which
enjoyed inflows of $541 million in February. Oil and gas
equipment and service sector stocks, and oil and gas pipeline
operators in master limited partnerships (MLPs) were key
beneficiaries, Kittsley said. 
    Energy infrastructure companies tend to have a long-term
service contract and relatively fixed cash flows. But because
the cost of making repairs to infrastructure is low relative to
the companies' income, they normally return cash to investors.  
    "Many ETPs in this space offer attractive dividend yields,
particularly with respect to MLPs, and the increase in flow may
be a reflection of robust demand for high dividend paying
equities," Kittsley said. 
    At the end of February, BlackRock's data covered 925
commodity ETPs worldwide, worth some $187.9 billion.
    ********************************************************
    Global commodities ETPs at end-February (US$ mln)
 SECTOR                   FLOWS       ASSETS
 Total                    -5,149      187,934
 Broad/Diversified        113         19,751
 Agriculture              93          6,486
 Energy                   -218        8,365
 Industrial Metals        125         2,984
 Precious Metals Total    -5,262      150,348
 Gold                     -5,642      128,223
 Silver                   306         16,738
 Others                   74          5,387
    Source: BlackRock
    ********************************************************

 (Editing by Veronica Brown and Alison Birrane)
FILED UNDER: