November 7, 2012 / 1:11 PM / 5 years ago

Investors embrace energy ETPs in October-BlackRock

* U.S. crude ETPs attract good volumes ahead of Sandy
    * Gold ETP inflows at $2.5 bln as investors hedge U.S. risk
    * Asset allocators increase weights to broad commodities

    By Claire Milhench
    LONDON, Nov 7 (Reuters) - Energy commodity exchange traded
products (ETPs) attracted strong inflows in October, with U.S.
crude oil ETPs in focus as investors anticipated disruption to
oil production facilities from Hurricane Sandy.
    Investors shovelled almost $500 million into energy ETPs in
October, according to global data from BlackRock, taking total
net inflows to $1.5 billion in the year to date. 
    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.
    "Investors were anticipating disruption from Hurricane Sandy
and moved into WTI to play a potential rise in U.S. oil prices,"
 Nicholas Brooks, head of research and investment strategy at
ETF Securities, an issuer of ETPs, told Reuters. "There were
worries it would have an impact on overall production." 
    In the event, after laying waste to the Caribbean in
mid-October, Sandy veered north up the U.S. East Coast. This
meant it had a greater impact on gasoline consumption than crude
output as refineries and terminals could not supply petrol
stations in metropolitan areas of New York state and New Jersey.
    Unexpected falls in U.S. crude oil stocks at the start and
the end of the month may also have supported inflows,
Brooks said, as well as U.S. crude price weakness versus Brent.
    "The spread between the two is still very wide. Some
investors think WTI prices are too low relative to Brent."
    The S&P GSCI Energy index fell 4.41 percent in October as
increasing North American supplies and slack U.S. demand pushed
the S&P GSCI Crude Oil index down 6.85 percent, S&P said.
    Lower oil prices tend to attract ETP investors who trade a
range, selling after prices top out and buying after they reach
a bottom.  
    "Recent inflows may be reflective of investors finding
attractive entry points for exposure to energy in October as the
price of oil weakened," said Dodd Kittsley, global head of ETP
research at BlackRock.
    Conversely, energy equity ETPs had net outflows of some $300
million, which Kittsley said was mainly due to a $400 million
redemption from a single large U.S.-listed energy fund. 
    Brooks suggested some investors had pulled money from energy
equity funds ahead of Hurricane Sandy, due to worries about
infrastructure damage. "That could hit company earnings and hurt
the share price," he said. 
    Gold continued to attract good inflows of some $2.5 billion,
but the other precious metals had net outflows in October.
Kittsley said gold ETPs had attracted $10 billion over the last
three months and accounted for more than 82 percent of all
commodity flows in October.
    Brooks said gold was still seen as a hedge against extreme
tail-risk events, with fund managers eyeing the U.S. "fiscal
cliff" - an increase in taxes and cuts in spending that will
take effect in January if Congress cannot agree ways to cut the
U.S. deficit. 
    If implemented, the austerity measures could tip the U.S.
back into recession, potentially leading to a downgrade of U.S.
sovereign debt by ratings agencies, Brooks said. 
    "Then there is really no place to hide. If the risk is U.S.
deficit-related, you can't go into cash and U.S. Treasuries."
    Diversified commodity ETPs attracted good inflows of some
$196 million, but this was down from September's bumper $500
million inflows, which followed central bank stimulus measures. 
    Brooks said improvements in U.S. and Chinese economic data
had encouraged some investors to begin building positions in the
more cyclical asset classes. "Asset allocators have upped their
weights in commodities," he said. 
    Industrial metals also benefited from this tentative
rotation into riskier assets, with inflows of $37 million.
Brooks said copper ETPs alone had attracted some $58 million.
    However, he added that most investors had remained on the
sidelines ahead of the U.S. election and the leadership
transition of the Chinese communist party. 
    "People are also still waiting to see if Spain will take a
bail-out. Whilst this uncertainty remains they won't invest in a
big way apart from in gold, which remains one of the few hedges
against things going very wrong with the U.S. economy," he said.
    At the end of October, BlackRock's data covered 903
commodity ETPs, worth some $201 billion. ETF Securities had some
$28.7 billion invested in its commodity ETPs.

 (Editing by James Jukwey)

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