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ETF Securities' end of first half results for 2008 (1H08) show that commodities were once again the top performing asset class. The ETFS All Commodities DJ-AIGCISM ETC returned 15.6% during 2Q08 and 26.8% 1H08. With the slow down in the United States and the sub-prime crisis continuing to affect markets, equities and real estate were the again the worst performing asset classes for the second quarter in a row. For 1H08, the S&P500 index returned -11.9%, the DJ EuroStoxx50 returned -15.6% and the FTSE100 returned -10.5%. Therefore, the ETFS All Commodities ETC outperformed equities by approximately +40% over the first six months of 2008.
As a result of commodities' outperformance and also due the continued upheaval in world equity and credit markets, ETF Securities assets under management (AUM) ballooned by approximately 152% to $6.3 billion during 1H08.
Of the 37 commodities and baskets of commodities which ETF Securities provides exposure to, ETFS Natural Gas was the best performing commodity during 1H08 showing a return of 72.7% over the half. Sixteen types of ETCs showed performance above 50% during 1H08 including: ETFS Natural Gas, ETFS Brent Oil, ETFS Corn and ETFS Energy. Only a few commodities showed negative performance with ETFS Lean Hogs, ETS Zinc and ETFS Nickel showing the worst performance.
In addition to its 1H08 performance, commodities have also shown that they can outperform over the long term. Commodities were the top performing asset class in five of the past ten years. During this time, real estate was the top performer 30% of the time, bonds 10%, equities 10% and hedge funds 0% of the time. Over the past ten years, commodities have outperformed equities by approximately 4:1. The DJ-AIG Commodities IndexSM returned approximately 12.8% p.a. over ten years compared to 3.4% p.a. for the MSCI world equity index. The newly launched The DJ-AIG 3 Month Forward Commodities IndexSM would have performed even better with a 19.6% p.a. return over the past ten years.
These results show that asset allocation is an important determinant of portfolio performance and why it is important to have a diversified portfolio. Diversification is even more important as 1H08 showed that returns within equities are becoming more correlated with a different range of indices and strategies all being highly correlated. This included US equities, UK equities, world equities, large-cap, small-cap, growth and value which have all showed negative returns over the past six months. This increased correlation has resulted from two major causes; global financial and real economy integration has increased over the past ten years, and many markets tend to move together during volatile or stressed markets such as the one we are currently experiencing.
The following show the returns during 1H08 for various commodity baskets:
| ETFS Energy DJ-AIGCISM | 53.7% |
| ETFS All Commodities DJ-AIGCISM | 26.8% |
| ETFS Physical PM Basket | 19.5% |
| ETFS Agriculture DJ-AIGCISM | 18.9% |
| ETFS Industrial Metals DJ-AIGCISM | 14.3% |
| ETFS Livestock DJ-AIGCISM | -7.9% |
Increased demand has occurred across all commodity sectors. During 1H08, precious metal ETCs added $1.6 billion (or 138%), with ETFS Physical Gold and ETFS Physical Platinum adding $1.3 billion between them. Agriculture ETCs added $1.2 billion (or 131%) with ETFS Agriculture and ETFS Forward Agriculture adding $807 million. However, Livestock ETCs were the surprise of 1H08, adding $238 million (an 1080% increase) which was spread evenly across livestock, lean hogs and live cattle.
In total, ETF Securities now offer platforms of physically backed precious metal ETCs and Classic, Forward, Short and Leveraged ETCs providing exposure to energy, agriculture, livestock, industrial metals and precious metals. The ETCs have been listed on five major European stock exchanges in dedicated ETC trading segments.
Commenting on the quarterly ETC performance figures, Nik Bienkowski, Chief Operating Officer, at ETF Securities, said:
"There has been a significant increase in demand for ETCs linked to the price of a wide range of commodities. Most recently, this demand has been for precious metal, agriculture and livestock ETCs as investors seek to diversify their portfolios away from equities, real estate and hedge funds and into other asset classes.
"Commodities have shown they outperformed in five of the past ten years with an average annual return of almost four times that of equities. In addition, their low correlation to other asset classes in times of financial stress also adds to the strong case for an allocation to commodities in a diversified portfolio.
"As a result of the current financial situation, investment characteristics and strong fundamentals over the past few years, ETF Securities has experienced phenomenal asset growth of nearly 152% during the first half to approximately $6.3 billion at the end of the 1H08."
