Heavy outflows from commodity ETPs as equities appeal -BlackRock

Mon Apr 8, 2013 5:46am EDT

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* Commodity ETP outflows hit $3.2 bln in March
    * Gold exodus continues, Q1 redemptions $9.2 bln
    * Cyprus crisis hits demand for growth-oriented assets

    By Claire Milhench
    LONDON, April 8 (Reuters) - Investors in commodity exchange
traded products (ETPs) unwound their holdings to jump on the
equity market rally in March, resulting in total redemptions of
$3.2 billion globally, according to BlackRock data. 
    Gold suffered an investor exodus for a third consecutive
month, bringing first-quarter ETP outflows to $9.2 billion, but
white metals - silver, platinum and palladium - escaped the
sell-off, BlackRock, the world's largest asset manager, said. 
    Riskier, growth-related commodities such as industrial
metals and energy also did poorly in March, as the Cyprus crisis
stoked new worries over eurozone debt and economic growth.
    "European-listed ETPs had outflows in every commodity
category, which we attribute to heightened uncertainty in the
region," said Dodd Kittsley, global head of ETP research at
BlackRock. 
    Equity ETPs were the big gainers, popular among investors
wanting to take more risk for more return.
    An easy route into commodities for investors, ETPs include
funds, commodities and notes traded on a stock market with their
value linked to the underlying assets. 
    In the first quarter of this year, flows into U.S. equities
accounted for $37.3 billion, up 80 percent year-on-year,
BlackRock said. The S&P 500 leapt 10 percent over the
first quarter, and a slight dip at the end of February gave more
investors an opportunity to buy in.  
    "Despite continued market volatility, investors recognise
that the fundamentals in the United States are generally
favourable, given strong corporate earnings and cheap equity
valuations," said Russ Koesterich, global chief investment
strategist at BlackRock.
    The white metals were the only commodities group to see any
inflows in March, attracting $170 million. Kittsley noted that
these inflows were driven by U.S.-listed products amid
expectations of U.S. economic growth.
    Nicholas Brooks, head of research and investment strategy at
ETF Securities, an issuer of ETPs, said silver tended to
outperform gold strongly during periods when economic growth is
rising because of its use in industrial production. 
    Physical platinum ETPs attracted inflows due to supply
worries after South African energy provider Eskom 
reduced power to some mining companies due to a strike at its
coal supplier Exxaro.  
    Brooks said investor positioning in the futures market was
near all-time highs, however. "So all you need is a bit of
negative news on the growth side and prices could come off very
sharply. I wouldn't be surprised if investors take more off the
table in platinum and palladium in the next month or so."
    
    GOLD ENDS LOSING STREAK
    Gold ETPs began to claw back some ground in the second half
of March as the Cyprus debt crisis unfolded, driving investors
back to defensive assets from the more cyclical commodity ETPs
such as industrial metals. 
    S&P GSCI's Gold index, a popular benchmark, was up 0.99
percent in March, following a 11.2 percent drop in the last five
months, its longest consecutive losing streak in 17 years.
Conversely, S&P GSCI Industrial Metals was the worst performing
sector in March, down 4.4 percent.
    Agriculture ETPs suffered a reversal in March, with $176
million of outflows after strong inflows in February. The S&P
GSCI Agriculture index was down 2.2 percent, with corn hit by a
report showing larger-than-expected U.S. corn stockpiles and the
most planted corn acres since 1936. 
    Energy ETPs also experienced large outflows in March, losing
$668 million according to ETF Securities data. Brooks said this
was due to profit-taking, with S&P GSCI's Crude Oil index up 5.1
percent in March after inventories fell at Cushing, Oklahoma. 
    Natural gas ETPs also suffered heavy outflows of $562
million after U.S. benchmark Henry Hub NG-W-HH prices climbed
to over $4 per million British thermal units (mmBtu) from $3.19
per mmBtu in February. Cold weather and high electric power
sector demand triggered larger-than-usual inventory draws in the
United States.
    At the end of March, BlackRock's data covered 928 commodity
ETPs worldwide, worth some $183.6 billion. Data from ETF
Securities also reflect global flows, and assets totalling
$185.9 billion.  
    **********************************************************
    Global commodities ETPs at end-March (US$ mln) 
 SECTOR       FLOWS        ASSETS       FLOWS (ETF   ASSETS (ETF
              (BlackRock)  (BlackRock)  Securities)  Securities)
 Total        -3,160       183,590      -3,338       185,942
 Broad        -263         19,050       -235         17,983
 Agriculture  -176         5,635        -175         4,431
 Energy       -423         8,171        -668         6,934
 Industrial   -82          2,483        -80          2,090
 Metals                                              
 Precious     -2,217       148,251      -2,179       154,503
 Metals                                              
   Sources: BlackRock, ETF Securities 
 *************************************************************

 (Editing by Clelia Oziel and Jason Neely)
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