ETF Securities: Agriculture ETPs standout during summer doldrums

Aug 30th, 2017 | By | Category: Commodities

London-based ETF Securities has reported that flows into its commodity ETPs were subdued over the week ending 25 August 2017 with James Butterfill, head of research and investment strategy, noting the summer doldrums have taken a toll on the volume of flows. The exception has been ETPs tracking agricultural products which collectively recorded $17m in net inflows.

ETF Securities: Agriculture ETPs standout during summer doldrums

ETF Securities has reported net inflows of $17m across its agriculture ETPs over the past week.

Coffee-based ETPs saw inflows of $8.7m, the largest weekly inflows since May 2015 despite coffee being one of the weakest performers year-to-date (YTD) in agriculture. The ETFS Coffee ETP (LON: COFF) has lost 13.1% since 1 January. ETF Securities notes the commodity may see a turnaround in fortune as recent news of an outbreak of the borer beetle, due to the ban of certain pesticides, suggests there could be a burgeoning supply constriction. COFF has a management expense ratio (MER) of 0.49%.

Long wheat ETPs recorded inflows of $8.0m, outpacing the peak observed following the extreme drought in the US in 2013. ETF Securities offers the ETFS Wheat ETP (LON: WEAT) which has a MER of 0.49%. The ETP is down 9.5% YTD.

Precious metal ETPs saw net outflows of $27m with only gold bucking the trend and seeing minimal inflows of $8.8m during the week. Butterfill said: “In precious metals, which are particularly sensitive to comments from central bankers, prices have remained steady as investors waited for any hints from them at the Jackson Hole meeting on Friday.

“Despite the threat of interest rate hikes there have been net flows of $338m year-to-date in gold ETPs with outflows in short positioning, suggesting investors aren’t worried about any significant downside risks for gold in the immediate future. In addition, the price of gold gained nearly $20/oz. this morning as a missile from North Korea overflew Japan early Tuesday.”

Energy ETPs recorded total net outflows of $12m for the week – crude oil ETPs recorded their sixth consecutive week of net outflows, seeing net assets totalling $11.3m flowing out of the funds for the week and outflows of $225.5m since mid-July.

“We continue to observe a fairly established trend of investors selling out positions when the price of crude is above $50/bbl,” said Butterfill. “Inflows then tend to resume when the oil price falls below $45/bbl. We believe this is likely to continue as oil is likely to remain range-bound, trading between the lower marginal cost of production for the US tight oil producers and $55/bbl, the 90th percentile of the broader oil producers cost curve.”

Industrial metal ETPs saw net outflows of $14m, primarily from the firm’s nickel ETP which saw investors withdrawing a net $12.1m for the week and $25.9m for the month; Butterfill ascribes these outflows to likely profit taking. “The metal is valued as one of the cheapest when comparing current prices to marginal cost,” he said. “Prices have also been a laggard relative to its industrial metal peers for the full year. The metal is however playing a catch up over the past month, triggering profit taking from bargain hunters.”

Industrial metals have been the best performer over the last month in the commodities sphere, having risen 8% versus broader commodities remaining flat. “Import data from China is the likely reason for the outperformance,” notes Butterfill. “We continue to expect China data to beat expectations and many forward-looking data points, such as electricity consumption and port volumes, have been rising in recent months.” Investors looking for exposure to potential future gains in industrial metals may wish to consider the ETFS Industrial Metals ETP (LON: AIGI) which has a MER of 0.49%. The ETP provides exposure to a basket of industrial metals including copper (45%), aluminium (27%), zinc (15%) and nickel (13%).

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