Commodities | Oct 20 2008
By Chris Shaw
Total commodity assets under management (AUM) fell in the September quarter for the first time since 2003, although the pace of the fall in commodity prices in recent weeks means that this it may come as a surprise. The fall was reasonably substantial, with Barclays Capital group estimating AUM now stands at US$211 billion compared to US$270 billion at the end of the June quarter.
But the important point to note, according to Barclays, is the fall doesn’t reflect outflows of capital from the sector, as on its numbers outflows were broadly matched by inflows during the period. This means the fall is due almost entirely to falling prices across the commodities sector.
This compares to the results in the June quarter, when assets under management in commodities rose by around US$43 billion, again due almost entirely to higher prices across the commodities universe.
Given little in the way of net fund flows, the group has attempted to identify any trends in terms of how investors are changing their exposure to the commodities sector, finding only the precious metals sector enjoyed a net inflow of funds in the September quarter. The increase of around US$3.5 billion was due entirely to more money flowing into exchange traded products (ETPs).
In contrast, the agricultural commodities sector was the largest loser, with net outflows of around US$2.4 billion spread across a variety of products and commodities. Base metals and energy also saw aggregate outflows, but in both cases the magnitude was far smaller than for the agricultural sector.
The agriculture turnaround highlights how quickly market sentiment has changed here, as Barclays points out the sector was clearly the investor favourite in the first quarter of the year, but the September quarter pullout of funds has seen about half the total inflows of the first half of the year withdrawn.
The extent of the price moves in commodity markets in recent weeks has little to do with fundamentals in the group’s view, rather it reflects attempts by investors to rebalance between liquidity and risk given the current uncertainty in financial markets.
While much of the money to come into the sector has come via ETPs and at the expense of commodity indices, Barclays notes the ETPs have been the most volatile of investment options and this has contributed to very choppy performance in terms of fund flows in recent months.
The group’s analysis of the fund flows leads it to suggest commodity assets are not suffering from higher rates of withdrawals than other asset classes at present. The change is due to investors becoming more selective in where they choose to invest. Given such an environment, and the status of the precious metals as something of a safe haven, this is one sector where the group continues to forecast net inflows in coming weeks.
