ETF Securities’ Commodity ETC Assets Rise $9bn in 2009 to $16bn as Demand for Gold, Energy, Agriculture and Other Hard Assets Surge


  • Record breaking year for commodity ETCs, with assets up over $9bn (2.3X end-2008 levels) to $16bn….


      • Record breaking year for commodity ETCs, with assets up over $9bn (2.3X end-2008 levels) to $16bn

      • ETFS Copper (COPA) up 130% and ETFS Physical Palladium (PHPD) up 114%, 2 of top 5 best performing long ETFs/ETCs listed on the London Stock Exchange

      • ETFS Industrial Metals (AIGI) best performing commodity basket in 2009, up 80%

      • Physically-backed precious metal ETC holdings – gold, silver, platinum, palladium – reach historic highs

      • ETFS Forward All Commodities DJ-UBSCI-F3SM (FAIG) up 263% over the past 10 years, making commodities the top performing major asset class over the period

      Commodities bounced back strongly in 2009 following the recent credit crisis, with ETFS Forward All Commodities DJ-UBSCI-F3SM (FAIG) up 23% over the year and 263% over the past 10 years. ETFS Industrial Metals (AIGI) was the best performing sector, up 80% over the past year. Industrial metals significantly outperformed developed market equities, outperforming the Dow Jones Euro STOXX 50 by 48 percentage points in 2009. Industrial metals have also outperformed bonds, cash and real estate over the same period as the global recovery has become more entrenched and market appetite for plays on the recovery has accelerated. The precious metals sector was the next best performing major sector, with ETFS Physical Silver (PHAG), ETFS Physical Platinum (PHPT) and ETFS Physical Palladium (PHPD) all returning over 50% in 2009.

      Commodities were the best performing major asset class over the past 10 years, with ETFS Forward All Commodities DJ-UBSCI-F3SM (FAIG) rising by 263%, compared to a 2% rise in the Dow Jones Euro STOXX 50, a 9% rise in the FTSE 100, a 7% rise in property1 and 71% return on bonds2. This outperformance was achieved with lower average annual volatility than equities over the same period (see table below).

      Asset Class Returns Compared (1 Year, and Past 10 years)

      Returns (USD)
      1 Year
      10 Years
      ETFS Industrial Metals 80% 183% 23%
      ETFS Forward All Commodities DJ-UBSCI-F3SM 23% 263% 15%
      FTSE 100 41% 9% 23%
      Dow Jones Euro STOXX 50 32% 2% 24%
      US Tracker 1-10 Yrs Bond Index -2% 71% 4%
      UK EPRA Real Estate Index 21% 7% 25%

      Source: Bloomberg
      1 Property: proxied by the UK EPRA Real Estate Index
      2 Bonds: Proxied by US Tracker 1-10Yrs Bond Index
      3 Calculated using the annual volatility of daily returns from 31st December 1999 to 31st December 2009

      2009 has been a record breaking year for commodity inflows, with assets under management (AUM) across all of ETF Securities’ commodity ETCs rising $9 billion to $16 billion over the past 12 months. Physical gold and long natural gas ETCs have seen the largest investment demand over 2009, with inflows of $2 billion and $1 billion respectively over the past 12 months.

      In terms of investor positioning, agriculture ETCs such as ETFS Agriculture DJ-UBSCISM (AIGA) had the highest buy/sell ratio of any sector in 2009 with a ratio of 3.1. Agriculture ETCs saw steady interest, with net inflows in 45 of the 52 weeks in the year. Industrial metals had the next strongest buy: sell ratio at 2.8, coinciding with the sharp rise in industrial metal prices in 2009. Although energy ETCs have seen the second largest inflows in 2009, their buy/sell ratio was one of the lowest at 1.7 as extremely strong oil inflows in the first four months of the year and the surge of inflows into natural gas ETCs since May were partially offset by outflows in May and June from ETCs tracking shorter-dated oil futures returns.

      Industrial metals were the strongest performing sector in 2009, up 80% over the year. Gains were led by a 130% rise in ETFS Copper (COPA) and a 98% rise in ETFS Zinc (ZINC). ETFS Aluminium (ALUM) remained the weakest of the industrial metals, but still managed a 34% return. Flows into industrial metals accelerated in 2009, taking industrial metal assets to more than twice their previous peak level seen in H1 2008. Robust Chinese demand, coupled with stronger manufacturing activity in developed economies, has underpinned investor interest in industrial metals.

      Top 10 Long and Short ETC Performance

      Top 10 Longs
      1 Year
      ETFS Lead* (LEED) 133.1%
      ETFS Copper (COPA) 130.0%
      ETFS Physical Palladium (PHPD) 113.6%
      ETFS Zinc (ZINC) 98.3%
      ETFS Sugar (SUGA) 86.3%
      ETFS Industrial Metals DJ-UBSCISM (AIGI) 80.0%
      ETFS Tin* (TINM) 68.8%
      ETFS Physical Platinum (PHPT) 62.7%
      ETFS Physical Silver (PHAG) 57.5%

      Top 10 Shorts
      1 Year
      ETFS Short Natural Gas (SNGA) 46.7%
      ETFS Short Lean Hogs (SLHO) 17.9%
      ETFS Short Wheat (SWEA) 17.2%
      ETFS Short Livestock DJ-UBSCISM (SLST) 14.8%
      ETFS Short Live Cattle (SLCT) 8.5%
      ETFS Short Corn (SCOR) -2.5%
      ETFS Short Grains DJ-UBSCISM (SGRA) -7.2%
      ETFS Short Energy DJ-UBSCISM (SNRG) -9.3%
      ETFS Short Coffee (SCFE) -17.0%
      ETFS Short Agriculture DJ-UBSCISM (SAGR) -17.4%

      Source: Bloomberg
      * ETFS Lead rose 133% and ETFS Tin rose 69% based on simulated returns using the respective underlying DJ-UBS Sub-IndexesSM. These products were listed in November 2009.

      Within precious metals, the best performing commodities were metals tied to the industrial cycle, with ETFS Physical Palladium (PHPD) up 114%, ETFS Physical Platinum (PHPT) up 63%, and ETFS Physical Silver (PHAG) up 57%. Gold prices reached fresh historic highs in 2009, breaching the $1200/oz mark by the start of December and ending the year just shy of $1100/oz. Interest in physical gold holdings was extremely strong, up 2.1 million ounces (35%) over the past 12 months. This marks the second year of rapid growth in physical gold holdings, which have more than doubled (up 4.4 million ounces, or $5 billion at the current gold price) since the start of 2008. Total assets in ETF Securities’ physically-backed gold ETCs stood at $8.9 billion at the end of December 2009, making them the largest ETF/ETC gold holdings in Europe and the second largest ETC/ETF gold holding in the world. Other physical precious metal ETC holdings also posted new historic highs in 2009, with physically-backed silver, platinum and palladium ETCs seeing their metal holdings (in ounces) reach the highest levels since inception by the end of November.

      The energy sector saw mixed performance over 2009, with a 75% rise in ETFS Gasoline (UGAS) and a 42% gain in ETFS Brent 1mth (OILB) offset by a 52% drop in ETFS Natural Gas (NGAS). In H1 2009 sharp falls in oil prices attracted almost $1 billion of inflows into long oil ETCs between January and May. There was some profit taking on these positions subsequently, coinciding with $1.4 billion in inflows into long natural gas ETCs between the start of May and the end of November. These flows suggest some rotation in investor positioning within the sector as natural gas prices have underperformed their oil counterparts.

      Agriculture saw a sharp divergence in returns with ETFS Softs (AIGS) up 44% in the 12 months to the end of December, compared to a 2% drop in ETFS Grains (AIGG). ETFS Softs was boosted by a 86% rise in ETFS Sugar (SUGA) and a 30% rise in ETFS Cotton (COTN). ETFS Soybeans (SOYB) was up 23% while ETFS Wheat (WEAT) was down 26% and ETFS Corn (CORN) was down 10%. Agriculture saw the most consistent and third largest inflows (behind energy and precious metals) in 2009 totalling over $1 billion. Historically low levels of inventories, together with a number of weather-related crop disruptions this season, have helped underpin investment demand in agriculture in 2009.

      Nicholas Brooks, Head of Research and Investment Strategy, commenting on the 2009 performance numbers said:

      “Demand for commodity ETCs was incredibly strong in 2009 and this has continued into 2010. ETF Securities assets under management in commodity ETCs in 2009 rose by $9bn to end the year at $16bn on the back of strong demand for gold and other physically-backed precious metal ETCs as well as energy, agriculture and industrial metal ETCs. Assets under management in our ETCs are now 60% higher than they were in July 2008 before the financial crisis broke out. Most of the demand has been for long exposure, with investors’ building their holdings of “hard assets” for their strong long-term supply-demand fundamentals, as well as their potential to hedge against inflation and currency debasement risks as government finances deteriorate and central banks keep the liquidity taps open.”

      Source: ETFWorld – ETFSecurities


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