May 10, 2013 (TSR-Reuters) – Commodity-based exchange traded products (ETPs) suffered record outflows of $9.3 billion in April, data showed on Thursday, as institutional investors dumped gold holdings.
Leading wealth managers have been switching out of commodities since the start of the year in favour of equities and bonds as they look for yield, a trend which accelerated in April with a major sell-off across the commodities field, led by a collapse in the gold price.
Global outflows from commodity ETPs tripled month-on-month, according to Blackrock Inc, the world’s largest asset manager, while redemptions from the precious metals segment quadrupled after gold’s largest spot-price decline in 30 years.
Investors pulled $8.7 billion from gold ETPs globally, Blackrock’s data showed, after the yellow metal plunged to $1,321.35 an ounce.
Lower U.S. inflation expectations, a weak Chinese GDP report and rumours of potential gold reserve sales by distressed European countries such as Cyprus also contributed to investor outflows, Dodd Kittsley, global head of ETP research at BlackRock, said.
ETPs, whose value is linked to moves in their underlying assets, are an easy route into commodities for investors. Gold ETPs dominate the commodity sector, accounting for 66 percent of the total $159 billion invested in commodity ETPs globally.
The previous record for outflows was set in February when gold ETPs lost $5.7 billion and total commodity ETPs lost $5.2 billion. Outflows from gold ETPs now amount to $17.9 billion year-to-date, with overall commodity outflows at $17.8 billion.
Despite good demand for gold coins, bars and jewellery following the price collapse, ETP investors remained net sellers into May, which Ole Hansen, head of commodity strategy at Saxo Bank, attributed to institutional accounts.
These make up about half of the investments in the SPDR Gold Trust, the world’s largest gold ETP, he said, which lost $13.4 billion in the first four months of 2013.
Redemptions from industrial metals ETPs also increased, to $113 million from $82 million in March. Kittsley said the majority of these outflows were from copper ETPs, as benchmark copper fell from $7,540 a tonne at the end of March to $7,055 a tonne at the end of April.
Analysts cited renewed concerns about weaker growth in China and the United States, rising copper inventories on the LME, and new mine supply.
“Expectations of a surplus in copper this year because of new supply coming online has caused some investors to cut their positions,” said Nicholas Brooks, head of research and investment strategy at ETF Securities, an issuer of ETPs.
Brooks said asset allocators were now in a transition phase. “People haven’t gone fully ‘risk on’ – they are going into defensive (recession-proof) equities,” he said.
“There’s uncertainty about the sustainability of the U.S. recovery and the debt problem in Europe. I’m not surprised investors are being more cautious about their cyclical bets.”
At the end of April, BlackRock’s data covered 928 commodity ETPs worldwide, worth some $159 billion. The following table shows global commodities ETPs at end-April (US$ mln):