Commodity ETFs: Commodity markets higher as macroeconomic sentiment improves

Feb 14th, 2012 | By | Category: Commodities

Commodities were higher in January, with many commodities reversing the slump seen in the second half for 2011.

Commodity ETFs: Commodity markets higher as macroeconomic sentiment improves.

Commodities were higher in January, with many commodities reversing the slump seen in the second half for 2011.

Nelson Louie, Global Head of Commodities in Credit Suisse’s Asset Management division, said, “After a tough second half for 2011, many commodities have reversed part of the slump over the past month. It is starting to look more likely that the global economy has been more resilient than many had expected and that some of the downside risks have decreased, which could be supportive for global commodity consumption in 2012.

“Fundamentals for key commodities remain positive and the commodity markets continue to be susceptible to global supply shocks. For example, ongoing tensions with Iran have led to US and EU sanctions. While the evolution of this process is unpredictable, the potential for a reduction in supply of crude oil is elevated.”

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, “The Federal Reserve has confirmed once again it will maintain its extraordinarily loose monetary policy.  Signs of an economic recovery in the US and abroad are starting to materialise.  However, the US central bank will be in no hurry to raise rates and possibly choke the budding recovery. The odds of inflation overshooting expectations remain elevated, and commodities have historically tended to outperform during periods of higher-than-expected inflation. We believe investors will continue to benefit from the inflation protection and diversification potential of holding diversified commodities exposure within a portfolio of traditional assets.”


LGIM Commodity Composite Source ETF

– Exploits LGIM’s expertise as an index manager
to deliver ‘best of breed’ commodity exposure

– Covers 30 different commodities within energy,
agriculture, livestock, precious metals and
industrial metals

– Physical replication with swap overlay

– UCITS compliant, LSE-listed, UK Reporting
Status pending, eligible for ISAs and SIPPs

– TER of 0.85%. Current AUM $27.5m

The Dow Jones-UBS Commodity Index Total Return was up by 2.47% in January. Overall, 14 out of 20 index constituents increased in value. Precious metals were the best performing, up 12.69%, with both gold and silver delivering double-digit returns after the Federal Reserve announcement. Industrial Metals increased, up 10.92% for the month, supported by an improved macro-economic backdrop and continued draws in London Metals Exchange warehouse inventories.

Livestock also increased, up 2.30%, as live cattle benefited from tighter-than-expected inventory levels, and both lean hogs and live cattle continued to be supported by strong export demand.  Agriculture was relatively unchanged, down 0.67%. The USDA’s January corn inventory estimates were much higher than the market anticipated.  However, strong export sales helped lead to a recovery.  The estimate for winter wheat seedings was higher than last year and also much higher than expected.  A blast of cold weather in Europe caused concerns over crop damage, which also supported the complex late in the month, especially for wheat.

Energy ended the month down 3.47%, led by natural gas.  However, petroleum products and Brent oil posted positive returns following the announcement of the proposed EU embargo on oil imports from Iran.  Petroleum demand continued to soften compared to last year, as unprecedented warm weather in the US and Europe weighed on heating related demand.

For investors looking to gain exposure to commodity markets, there is a growing list physical ETCs, equity ETFs and swap-based futures ETFs to choose from (London listed, except where stated):

Broad Commodity

LGIM Commodity Composite Source ETF
iShares S&P GSCI Dynamic Roll Commodity Swap ETF
DB Commodity Booster DJ-UBSCI ETF 


iShares S&P Commodity Producers Oil and Gas ETF
iShares S&P GSCI Dynamic Roll Energy Swap ETF
ETFS Natural Gas £ ETC
ETFS Brent 1yr ETC

Agriculture & Livestock

iShares S&P Commodity Producers Agribusiness ETF
Lyxor S&P GSCI Agriculture & Livestock 3 Month Forward ETF
Lyxor S&P GSCI Inverse Agriculture & Livestock 1 Month Forward ETF
iShares S&P GSCI Dynamic Roll Agriculture Swap ETF
ETFS Agriculture £ DJ-UBSCI ETC
ETFS Forward Livestock DJ-UBSCI-F3 ETC

Industrial Metals

Lyxor S&P GSCI Industrial Metals 3 Month Forward ETF
Lyxor S&P GSCI Inverse Industrial Metals 1 Month Forward ETF
iShares S&P GSCI Dynamic Roll Industrial Metals Swap ETF

Precious Metals

iShares S&P Commodity Producers Gold ETF
iShares Physical Gold ETC
Source Physical Gold ETC
DB-X Physical Gold ETC
ETFS Physical Gold ETP
iShares Physical Silver ETC
DB-X Physical Silver ETC
Source Physical Silver P-ETC
ETFS Physical Silver ETP
ETFS Precious Metals DJ-UBSCI ETC 
Source Precious Metals T-ETC (SIX Swiss Exchange)

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