ETFS shrugs off Goldman commodities downgrade

A Goldman Sachs research note advising investors to take profits in commodities will not have a significant impact on exchange-traded product flows, ETF Securities says.

Goldman analysts published the note earlier this week, arguing the commodities run may be over and claiming the risks of investing in resources such as oil and copper now outweigh the potential benefits.

A number of US-based ETPs fell in apparent response to the news, but ETFS does not expect investors to start moving out of commodities. Neil Jamieson, ETFS director of third party distribution, says: "There is an immediate reaction that lasts for maybe a day or two, but I think that is very much a short-term effect."

ETFS head of research and investment strategy Nick Brooks adds: "The Goldman report is based on tactical investing rather than medium- to long-term investing. The investor base for commodity ETPs is primarily large institutions, and most are not going to be swayed by one broker report."

Goldman's latest comments mark a sharp reversal for the group, which has been recommending commodities since December. It also coincides with the publication of ETFS' Global Commodity ETP Quarterly for Q1 2011, which reveals global commodity ETP assets are at record highs.

Moreover, inflows have largely been to broad commodity and agriculture ETPs, despite the asset class being historically dominated by gold. ETFS says investors are increasingly turning to commodities as a means of portfolio diversification, to hedge inflation and capitalise on emerging market growth.

In response to Goldman's newly cautious outlook, Brooks points to the US Energy Information Administration's most recent report on energy and the International Monetary Fund's World Economic Outlook. He says: "The implication there is that oil prices are likely to be a lot higher in the future - and you can make a similar argument for quite a few commodities."

Jamieson adds: "The fundamental factors are still very much in place and are still suggestive of relatively strong commodity prices."