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- ETCs experience largest weekly net investment on record, with inflows up $581m (£430m) last week, highlighting the efficient structure of ETCs in current financial environment
- Agriculture ETC inflows up $56m (£42m) last week, the largest weekly inflow since April 2008
- Physical gold ETCs rise by 420,000 oz in one week or $367m (£272m)
- Agriculture and gold Exchange Traded Funds (ETFs) outperform equities by 20% over 7 weeks and 114% over 13 weeks respectively
- ETCs dominate ETF/ETC trading volumes on the LSE in 2008, with YOY increases despite falling equity trading volumes
ETF Securities Limited, the global pioneer of Exchange Traded Commodities (ETCs) and provider of Exchange Traded Funds (ETFs), is seeing consistent strong inflows into ETCs. Steady inflows into ETCs have been recorded every week for the past eleven weeks, going back to 7 November 2008. Of those past 11 weeks, $1,570m (£1,150m) has flowed into ETCs with gold and oil contributing 90%. More recently, agriculture ETCs have also begun to experience significant inflows. The strong inflows are a result of both commodities low to negative correlation with equities, and also the robust structure of ETCs.
Because of the current financial environment, investors are now demanding liquid, transparent and secure structures to safeguard assets. As a result, ETF Securities experienced its largest weekly inflow into ETCs ever. A total of $581m (£430m) flowed into ETCs last week, of which 63% went into physical gold ETCs, 20% into oil ETCs and 10% into agriculture ETCs.
Last week, inflows into ETFS Physical Gold (PHAU) and Gold Bullion Securities (GBS) was the largest weekly inflow on record - 420,000 ounces worth of ETCs were issued, equivalent to the quarterly production of the world's sixth largest gold company. Combined, the assets of PHAU and GBS now total $5.3 billion (£3.9bn) or 6 million ounces. Last week, the gold price rose from $835/oz to $899/oz, a weekly increase of 8% in USD terms and a weekly increase of 15% in GBP terms. And despite falling equity prices, ETFS Russell Global Gold Fund (AUCO), an Exchange Traded Fund (ETF) was up 9% in USD last week (15% in GBP) and 106% since 27th October 2008, outperforming the FTSE 100 Index by 114% in USD terms.
A significant departure from the past few weeks was new investment into agriculture ETCs. In total, $56m (£42m) was invested across a range of agriculture ETCs with ETFS Agriculture DJ-AIGCISM (AIGA) taking in $48m (£36m) and ETFS Wheat (WEAT) taking in $6m (£4.5m). Last week was the largest weekly inflow into agriculture ETCs since April 2008. Agriculture is beginning to receive renewed interest from investors as it is widely perceived to be more independent of the current financial crisis. In addition, inventories of a number of agriculture commodities remain at or near historic lows, while there has been some reduced plantings and poor weather in North and South America recently. As a result, all agriculture ETCs are up by around 20% since early December (see chart below of ETC prices, all numbers in USD).
| 05 Dec 08 | 23 Jan 09 | % change | |
|
ETFS Agriculture (AIGA) |
4.95 |
6.07 |
22.6% |
|
ETFS Softs (AIGS) |
3.97 |
4.72 |
18.8% |
|
ETFS Grains (AIGG) |
4.16 |
5.24 |
25.9% |
|
ETFS Coffee (COFF) |
2.24 |
2.60 |
15.8% |
|
ETFS Corn (CORN) |
1.29 |
1.62 |
26.1% |
|
ETFS Cotton (COTN) |
1.20 |
1.46 |
22.3% |
|
ETFS Soybean Oil (SOYO) |
5.56 |
6.45 |
16.1% |
|
ETFS Soybeans (SOYB) |
11.04 |
14.12 |
27.9% |
|
ETFS Sugar (SUGA) |
10.79 |
12.94 |
20.0% |
|
ETFS Wheat (WEAT) |
2.30 |
2.82 |
22.4% |
Since 5th December, agriculture related equities have also outperformed with the ETFS S-Net ITG Global Agri Business Fund (AGRI) ETF up 14% since 5th December 2008, outperforming the FTSE 100 Index by 20.1% in USD terms.
Long oil ETC continue to receive significant net inflows with oil remaining below $50 per barrel. Last week, a further $143m (£106m) of inflows were received into oil ETCs with ETS Brent Oil (OILB) and ETFS Crude Oil (CRUD) remaining the two largest oil ETCs with $236m (£175m) and $377m (£279m) in OILB and CRUD respectively. ETFS Leveraged Crude Oil (LOIL) remains the largest leveraged ETC with $84m (£62m) of assets. In total, there has been net inflows into oil ETCs of $629m (£465m) since the start of December, resulting in asset growth of 450% to total $808m (£596m).
Exchange volumes for ETCs have increased across all exchanges despite falling commodity prices and up to a 50% fall in equity trading volumes. In 2008, the USD value of ETC trading volumes on the London Stock Exchange increased 22% compared to the same time last year, while ETC trading volumes on the Deutsche Borse, Borsa Italiana and Euronext are up 200%, 46% and 77% respectively. In total, weekly ETC trading volumes are up by 31% to $600m (£444m) since January 2008. According to a recently published London Stock Exchange newsletter, 3 of the top 4 ETFs/ETCs traded on the LSE are ETCs with Gold Bullion Securities (GBS), ETFS Physical Gold (PHAU) and ETFS Short Oil (SOIL) being the most traded ETCs in London for 2008.
The collateralisation of many of ETF Securities' ETCs is also proving to be popular among investors. Last year, ETF Securities collateralised over 120 of its ETCs which track a range of DJ-AIG Commodity IndicesSM. The collateralisation was achieved using a range of highly rated securities and cash (details are available in the Supplementary Prospectus), thus significantly reducing exposure to credit risk. In addition, ETF Securities' six physically backed precious metal ETCs are 100% backed by "allocated" physical gold LBMA bars. Allocated gold is not subject to any credit risk, unlike many gold accounts or unallocated gold. With the structure of ETCs also clearly explained in the relevant Prospectus, ETCs remain an extremely transparent investment.
Commenting, Nik Bienkowski, Chief Operating Officer, at ETF Securities, said:
"In the last two months of 2008 and continuing this year, investors are seeking assets which are liquid, secure and transparent. Exchange traded commodities (ETCs) solve these issues and as a result, its not surprising that record flows of $581m (£430m) were experienced across a range of ETCs. In addition, ETCs generally have low to negative correlation to equities and bonds.
"With oil prices around $45/bl, credit risk an issue and a number of well published issues in the agricultural market, ETCs provide an ideal structure to take advantage of these themes. As a result, a number of collateralised products including ETFS Physical Gold, ETFS Agriculture and ETFS Crude Oil have all experienced record inflows over the past few weeks. These record flows are proof that investors are willing to invest their money in secure and transparent structures."
