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Precious metal ETCs were the top performers in 1Q 2009, with gold, silver, platinum and palladium prices up 17% on average over the quarter.
Industrial metal ETCs were the next best performing group, rising by an average of 7% during 1Q09. However performance diverged widely, with copper prices surging 30% while Nickel prices fell by 16%.
Quarterly flows into ETF Securities' physically-backed gold ETCs rose by $1.3mn ounces, 3.7 times the amount of inflows during 4Q 2008 and the largest quarterly increase on record.
Quarterly flows into long oil ETCs also hit a new record, rising by $916mn, 2.6 times the amount of inflows during 4Q 2008.
ETF Securities' assets under management benefited from a move by investors into transparent, liquid and secure investments, with AUM surging 44% to $10.1bn.
ETF Securities' 1Q 2009 results show that commodities outperformed equities in the first quarter, extending the outperformance of the past ten years. Precious metals, as measured by the DJ-AIG Precious Metals Sub-IndexSM, was the best performing commodities group, up 7% during the quarter, followed by the DJ-AIG Industrial Metals Sub-IndexSM, up 5%. Commodities as measured by DJ-AIG-F3 Commodities IndexSM, fell 4% during the quarter, compared to a 12% decline in Dow-Jones Euro Stoxx 50 Index, a 10% fall in the FTSE 100 Index and a 11% fall in the MSCI World Index during the period. A surge in demand for commodities and for liquid, collateralised and physically backed exchange traded commodities (ETCs), caused ETF Securities' assets under management to rise by 44% during the quarter to $10.1bn.
ETFS Physical Gold (PHAU), Gold Bullion Securities (GBS) and ETFS Physical Silver (PHAG) were the best performing long ETCs during the early part of the quarter as investors searched for safe havens from financial and economic upheaval. During the latter part of the quarter, as investors became more optimistic about the economic outlook, cyclical ETCs pulled ahead, with ETFS Copper (COPA), ETFS Physical Platinum (PHPT) and ETFS Physical Silver (PHAG) surging to finish as the strongest performering long ETCs during the quarter with returns averaging 25%.
Widely diverging commodity price trends during the quarter meant that a number of short ETCs (ETCs that move -1X the daily % change of the underlying index) also performed strongly. ETFS Short Natural Gas (SNGA) was the strongest performing ETC, rising by 43%, followed by ETFS Short Energy DJ-AIGCISM (SNRG) up 15%, and ETFS Short Wheat (SWEA) up 12% (see tables below).
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Commodities have been the best performing major asset class over the past ten years. Over this period the DJ-AIG-F3 Commodities IndexSM returned 239% with an average annual volatility of 15%. This compares to a 16% decline in the MSCI World Index with a volatility of 17% over the same period. European equities (as measured by the DJ-EuroStoxx50 Index) were down 35% over the past ten years, real estate (as measured by the UK EPRA Real Estate Index) was down 31% and bonds (as measured by the Barclays Capital Bond Composite Global Index), had a total return of 72%.
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The first quarter was marked by diverging trends between various commodity sectors and individual commodities as investors began to focus on fundamentals after the indiscriminate de-leveraging driven selling of the second half of last year.
Precious Metals
Initially silver and gold were the strongest performers, with ETFS Physical Gold (PHAU) and Gold Bullion Securities (GBS) rising by 10% during Jan-Feb, while ETFS Physical Silver (PHAG) rose by 22% as investors focused on safe haven assets during the financial turmoil of the period. However, in early March, as some key global activity indicators showed signs of stabilization (or at least less rapid deterioration), performance shifted to more cyclical precious metals, with ETFS Physical Platinum (PHPT) and ETFS Physical Palladium (PHPD) outperforming.
Over the quarter, ETF Securities' physically-backed gold ETCs saw gold holdings rise by 1.3mn ounces, a 270% increase (3.7x) compared to inflows during 4Q 2008 - the largest quarterly increase on record. Total assets in the gold ETCs stood at the equivalent of $6.7bn (7.4 million ounces) at the end of 1Q 2009, the largest ETC/ETF gold holdings in Europe and the second largest in the world. ETFS Physical Silver saw assets rise 44% to $202mn. Assets held by ETFS Physical Platinum (PHPT) rose 230% from November 2008 lows, pushing AUM to $332mn. ETFS Physical Palladium (PHPD) saw AUM rise to $47mn, a 95% rise from December lows. The strong demand for physically-backed precious metals ETCs appears to have been driven by investor demand for liquid, safe haven assets with no credit risk, as well as demand for inflation hedges and hard asset investments more generally.
Oil and Energy
Oil ETC performance started the quarter poorly with the Brent oil spot price dropping to a low of $40/bbl at one point. However, as global cyclical indicators improved in the latter part of the quarter and OPEC cut more than expected, oil prices rebounded strongly, with the spot Brent oil price ending the quarter around $50/bbl. ETFS Brent 1mth (OILB), after falling by 10% in the Jan-Feb period, rebounded by 14% in March. As a result, oil ETCs also saw strong interest, with quarterly flows into long oil ETCs rising by a record $916mn in 1Q09, a 160% increase (2.6x) compared to inflows during 4Q08. At the end of 1Q 2009 assets in long oil ETC stood at $1.3bn, their highest level on record. The largest inflows were into ETFS Brent 1mth (OILB), ETFS WTI 2mths (OILW) and ETFS Crude Oil (CRUD) with interest in longer-dated oil ETCs such as ETFS Brent 1yr (OSB1) picking up strongly towards the end of the quarter. ETFS Gasoline (UGAS) was the best performing ETC within the energy sector, rising by 19% in 1Q09 as falling supply and better than expected demand towards the end of the quarter caused prices to rise sharply.
Industrial Metals
Industrial metals performance was extremely mixed during the quarter. The standout long ETC was ETFS Copper (COPA), up 30%. ETFS Leveraged Lead (LLEA) was up 46%. ETFS Zinc (ZINC) was also a strong performer, rising by 7%. On the other hand, ETFS Nickel (NICK) was one of the worst performing commodities, falling by 16% and ETFS Aluminium (ALUM) was down 12%. Towards the end of the quarter, as global activity data showed some signs of stabilization, industrial metals ETCs also started to see new flows, with inflows of $76mn into industrial metals ETCs, increasing total assets to $220mn, up 53% in the quarter.
Agriculture
Agriculture was expected to outperform given its low correlation to the business cycle, however its performance was also mixed, with ETFS Sugar (SUGA) up 5% and ETFS Coffee (COFF) up 1.5% but ETFS Wheat (WEAT) down 15% and ETFS Cotton (COTN) down 7%. Flows into agriculture ETCs picked up during the quarter, resulting in assets of $966mn by the end of the quarter, up 29%. The bulk of flows went into ETFS Agriculture (AIGA) and ETFS Wheat (WEAT).
The robust demand for ETF Securities' ETCs is being driven by strong demand for secure, simple, transparent and liquid methods of gaining exposure to commodities prices. ETF Securities now offers more than 130 ETCs with over $10 billion in assets. The ETCs provide investors with a wide variety of investment strategies with ETCs offering physical, long, forward, leveraged and short exposure to all commodity sectors. ETCs are simple to access as they are traded in four currencies (EUR, USD, GBP and AUD) and listed on six major Exchanges globally including the London Stock Exchange, NYSE-Euronext, Deutsche Borse, Borsa Italiana and the Australian Securities Exchange. Now 10 of ETF Securities' 129 ETCs are physically backed or 100% collateralised and daily mark to market to protect investors against credit risk.
Nicholas Brooks, Head of Research and Investment Strategy commented:
"Commodities performed well in the first quarter of 2009, with a number of commodity prices such as copper, platinum and silver rising by more than 20%. Energy prices were mixed with natural gas prices sharply down, gasoline prices up close to 20% and oil prices bouncing back sharply after steep declines in the first two months of the year. Initially, safe haven assets such as gold and silver were the strongest performers, but towards the end of the quarter as activity data and aggressive monetary and fiscal policies were put in place, more cyclical assets such as copper, platinum and oil rose sharply.
"Physically backed gold ETCs saw record flows throughout the period as investors continued to seek protection from credit, currency and longer-term inflation risks, with the ETFS Physical Gold and Gold Bullion Securities ETCs seeing assets rise by $1.5bn to an all time high of $6.7bn (7.4 million ounces). Oil benefited from perceptions that oil prices had dropped to unsustainably low levels, with $916mn of inflows during the quarter, a near three-fold increase over 4Q 2008 inflows. Flows into agriculture and industrial metals ETCs gained momentum as the quarter progressed, reflecting a broadening of investors' allocations to hard assets as central bank quantitative easing and commodity supply cutbacks caused investors to position for higher long term commodity prices."
