Record outflows from commodity ETPs in 2013 as investors dump gold

Thu Jan 9, 2014 4:51am EST

* Record $42.9 bln withdrawn globally in 2013-BlackRock
    * Gold ETPs account for over 90 pct of outflows
    * December outflows for commodity ETPs at $5.4 bln

    By Claire Milhench
    LONDON, Jan 9 (Reuters) - Commodity exchange traded products (ETPs) suffered their worst
year on record in 2013 as investors dumped their gold holdings and joined the equity rally, data
from BlackRock showed. 
    A whopping $42.9 billion was withdrawn from commodity ETPs in 2013, with gold ETPs
accounting for $40 billion of those outflows, asset manager BlackRock said. The SPDR Gold ETP
 lost $25 billion, the single biggest ETP outflow in 2013.
    December's total outflows topped $5.4 billion, with gold ETPs accounting for $3.6 billion.
ETPs, whose value is linked to moves in their underlying assets, are an easy route into
commodities for investors and allow asset managers to make quick, tactical shifts. 
    Gold has come to dominate the commodity ETPs space over the last few years, so any negative
sentiment towards the metal acts as a massive drag on the asset class as a whole.
    ETF Securities, an issuer of ETPs, said that global commodity ETP assets under management
declined by $78 billion to $122 billion in 2013, whilst gold ETP assets fell to $76 billion from
$147 billion at the start of the year. 
    Nick Brooks, head of research and investment strategy at ETF Securities, said 46 percent of
the decline in gold assets was due to a 28 percent fall in the gold price. The remainder was due
to investor outflows. 
    Excluding gold, Brooks said commodity ETPs ended the year with $606 million of net outflows
or down $6.9 billion in assets. "There were very mixed views towards broad commodities in 2013,"
he said. 
    "Demand is strong and the global economy is recovering, and in that environment commodities
would normally perform quite well. But there are expectations of quite large supply increases
for several key commodities in 2014 and that has held some investors back."  
    Outflows from gold ETPs accelerated in December after the U.S. Federal Reserve gave notice
that it would reduce its monthly asset purchases earlier than most analysts expected.
 "That led to knee-jerk selling of gold ETPs and a decline in the price," said
Brooks. 
    "The Fed's decision to taper the monetary stimulus certainly took a toll on gold and other
precious metals," agreed Dodd Kittsley, global head of ETP research at BlackRock. 
    "With inflation low and monetary stimulus reduced, investors shifted money to
return-producing equities. Gold spot prices also dropped nearly 4 percent in December in
the face of headwinds related to rising real rates."
    BlackRock said that flows shifted significantly in favour of equities in 2013. Funds with
U.S. equity exposure accounted for $147.8 billion, or 63 percent of all flows, up from
approximately 26 percent in each of the past three years.
    
    PRICE PERFORMANCE
    Investors' preference for equities reflected the disparity in price performance, with the
FTSE 100 up 14.4 percent in 2013. Conversely, the S&P GSCI, a popular commodity index, was down
1.22 percent in 2013, marking its third flat or negative consecutive year. 
    A few niche commodities - such as cocoa, soybean meal and cotton - delivered decent returns.
Of the major commodities, Brent crude oil was up by almost 7 percent, but ETP investors
tend to range-trade crude oil, banking profits after a rally.
    As a result, oil ETPs had $1.5 billion of outflows in 2013, ETF Securities said, the largest
outflows after gold. 
    Energy ETPs as a whole lost almost $1.2 billion in December alone, BlackRock said, a record
for its monthly data series, which goes back to January 2010. 
    Gold will face more headwinds in 2014 due to rising real interest rates and a stronger
dollar. For the more economically-sensitive commodities, the picture remains mixed due to an
expectation of supply surpluses in areas such as copper, U.S. shale oil and aluminium. 
    "As long as the economic recovery continues, there'll be a bias towards overweighting
equities and developed markets in particular," said Brooks. 
    "That doesn't mean commodities can't do well, but in that scenario investors are likely to
increase their allocations to equities at a more rapid pace than to commodities ex-gold."
    
    Global commodities at end-December (US$ mln)
 SECTOR            DEC FLOWS     2013 FLOWS    2013 ASSETS   2013 FLOWS (ETF   2013 ASSETS (ETF
                   (BlackRock)   (BlackRock)   (BlackRock)   Securities)       Securities)
 Broad             -101          -498          17,215        -287              16,069
 Agriculture       -171          -184          4,809         -74               3,791
 Energy            -1,177        -2,553        7,104         -2,150            6,834
 Industrial        -107          -213          1,869         -247              1,464
 Metals                                                                        
 Gold              -3,608        -40,145       67,793        -38,069           75,860
 Precious Metals   -3,819        -39,425       83,600        -35,916           93,993
 Total                                                                         
 TOTAL             -5,376        -42,871       114,597       -38,675           122,152
 COMMODITIES                                                                   
 Sources: BlackRock, ETF Securities
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