Commodity ETPs report record inflows

Exchange-traded products tracking diversified broad commodity indices saw global assets increase by $5.2bn in Q1 2011, marking the largest quarterly inflows for the sector on record, ETF Securities says.

The firm's forthcoming Global Commodity ETP Quarterly shows the inflows also represent over half the asset growth across all commodity ETPs during the first quarter.

Rising food and energy prices have been credited as accounting for up to half the increase in headline inflation rates in the US and China.

With agricultural inventories at historically low levels and social upheaval across the MENA region driving up oil prices, ETFS analysts say investors appear to be using commodity ETPs as a hedge against continuing price increases.

The firm's own ETFS Forward All Commodities DJ-UBSCI-F3, which tracks three month forward commodity futures, has returned 6.5% net of fees year-to-date. This compares to a 4.2% rise in the MSCI World TR index.

Speaking at the London Stock Exchange last Tuesday, ETFS head of research and investment strategy Nick Brooks said broad basket ETPs are benefiting from developing interest in commodities as a diversification tool.

"This is the first place an asset allocator goes in order to gain access to a new asset class. I would anticipate this is new money, coming from new, inexperienced investors."

Brooks explained that commodities offer an alternative way of playing global growth at a time when political instability is prompting investors to take money out of emerging market equities. "Commodities are a pure play on emerging market demand, and in fact benefit from turmoil in these regions."