Investors Flock to Commodities in First Quarter

Investors flocked to commodities-based, exchange traded funds in the first quarter of this year driven by optimism about global economic growth and a stabilization of the euro zone debt crisis, according to a new report.

Inflows into commodity ETPs, exchange traded products, rose $7.5 billion during the first quarter to a record $189 billion, according to ETF Securities' "Global Commodity ETP Quarterly" report, which tracks more than 1,700 listings of exchange traded funds, notes and trusts.

"There are real fundamental factors driving the trends," said Nicholas Brooks, head of research and investment strategy for ETFS.

The report showed investors clearly preferred metals, from gold to platinum to copper, over agricultural commodities.

Inflows into gold($3.6 billion) edged out those into non-precious metals ($3.1 billion), with copper ($248 million) notching its strongest quarter ever.

Though copper is now seen by some as an excellent economic barometer because of its wide use in manufacturing and infrastructure, Brooks said the increased inflows show, "supply is also a concern."

The ETFS report said data showed investors had increased their appetite for risk, after a tumultuous second half of 2011, when world markets rose and fell on the prospects of a Greek debt default.

Crude oilalso benefited from that sentiment, with inflows ($1.2 billion) up for the first time in six quarters, largely the result of tension over Iran's nuclear program and the prospect it might close the Straight of Hormuz, a key passage for oil tankers.

Outflows for agricultural products were $97 million, the smallest in three quarters. Soybeans was the strongest among the group.

Though the ETFS report painted a bullish picture for commodities, even its authors admitted that sentiment had changed somewhat in the last month.

"In the latter part of March, you started to see some tapering off," said Brooks. "And what we've seen in the first weeks of April is similar to what we saw in late March. Concern about sovereign risk in Europe is coming back as well as concerns about China growth. Frankly, it's rational. We had a pretty good run in the first ten weeks of this year."

ETF Exchange


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