Source commodity ETF records massive inflows as investors seek diversification

Feb 22nd, 2017 | By | Category: Commodities

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Data from Thomson Reuters Lipper shows that the best-selling ETF in Europe during January was the Source Bloomberg Commodity UCITS ETF A USD (LON: CMOD), which gathered around €800 million, surpassing the second fund on the list, the Vanguard S&P 500 UCITS ETF (LON: VUSD), by around €200m.

Source commodity ETF records massive inflows as investors seek diversification

The Source Bloomberg Commodity UCITS ETF provides exposure to futures contracts on physical commodities, covering six groups: energy, grains, industrial metals, precious metals, soft commodities and livestock.

The strong inflows into the Source ETF helped mark a turnaround for Europe-listed commodity ETFs, which gathered approximately €600m total net inflows, as investors sought to diversify their portfolios.

CMOD’s inflows accounted for more than 7% of total ETF inflows in Europe during January, the report found.

At the time of writing, CMOD held just shy of €1 billion in assets under management even though it only launched on 9 January this year. It costs 0.40% in fees (0.19% management fee and 0.21% swap fee), which is much cheaper than most other commodity ETFs available to European investors. It has edged down 0.2% in performance in USD terms since launch.

The underlying Bloomberg Commodity Index is composed of futures contracts on physical commodities, covering six groups: energy, grains, industrial metals, precious metals, soft commodities and livestock. Gold has the highest weighting at 11.4%, followed by copper at 8% and Brent crude oil at 7.5%.

Several commodities have seen rising prices recently. The gold price has rebounded so far this year from less than $1150 per ounce to $1236 following three months of decline.

Brent crude oil mostly traded sideways so far this year, but jumped from about $47 per barrel in November to $58 today.

Interestingly, commodity ETFs only gained approximately €600m in net new assets during January, indicating a net outflow of approximately €200m if the inflows into Source’s new ETF is stripped out. This is similar to the recorded flows of global investors, who withdrew a net $100m from commodity ETFs in January, according to an iShares report.

In Europe, equity ETFs attracted a net €7.1bn and fixed income ETFs pulled in €2.4bn for the month.

Two other popular commodity ETFs in Europe are from iShares and ComStage.

The iShares Diversified Commodity Swap UCITS ETF (Xetra: EXXY) launched in 2007 and has €800m ($843m) assets under management. The fund also tracks the performance of the Bloomberg Commodity (Total Return Index) through the use of a total return swap. It has total fees of 0.46%.

The second largest fund is the ComStage Commerzbank Commodity ex-Agriculture EW Index UCITS ETF (XETRA: CBCOMM) which costs 0.30% in fees and has $741.9m in assets.

The fund tracks an in-house index with significant exposure toe nickel (9.1%), palladium (8.5%) and aluminum (8.5%). Industrial metals, precious metals and energy each hold around a third of the index exposure. It launched in May 2009.

Taking a closer look at gold passive funds – gold is the top exposure in CMOD – those domiciled in Europe gained $400m in January, while global investors withdrew $700m from gold funds the same month, leaving a net outflow of $300m.

“Gold flows diverged by region with Europe investors buying but global investors selling in response to the rising rate regime in the US, said Patrick Mattar, from the capital markets team at iShares.

“This dynamic suggests European investors are currently more focused on portfolio diversification than those elsewhere.”

The last time gold flows diverged was in August 2016, but they had mostly acted in lockstep since then, with relatively small inflows in September and October, followed by heavily losses for the next two consecutive months.

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