Etikett: Bloomberg Commodity Index

Have your cake and eat it with The contrarian model

ETF Securities Have your cake and eat it with the contrarian modelHave your cake and eat it with the contrarian model

ETF Securities Asset Allocation Research – Have your cake and eat it with the contrarian model

  • Taking a contrarian view to a traditional reading of key indicators of commodity prices boosts the return of traditional portfolios of commodities.
  • Adding a short exposure to the contrarian model allows for drastically lower level of risk, enhancing the Sharpe ratio to 0.8 over a period of 16 years.
  • According to our analysis, implementation costs are likely to have minimal impact on the overall portfolio performance over the long and short run.

The contrarian model

In our January paper, How to make the best of commodities: the contrarian model, we discussed the concept of a contrarian strategy being applied to indicators that we view as having the largest impact on commodity prices: momentum, inventories, positioning and roll yield.

A traditional reading of these indicators suggests that if price is above its 200-day moving average, inventories are declining, net positioning is increasing or the futures curve (at the short end) is in backwardation, then this should be price positive.

In contrast, the contrarian model is an asset allocation strategy based on the opposite reading of these four indicators. We have derived five unique portfolios out of the contrarian model: one based on each of the above indicators and a fifth one combining all the indicators called the ETFS contrarian model. In this note, we focus on the results of the combined portfolio.

The long only ETFS contrarian model buys a commodity when all four indicators turn price negative and will hold the commodity until all four indicators become price positive. The model will then sell the commodity or take a short exposure to that commodity in the long short version of the model.

The commodity universe is similar to the constituents of the Bloomberg Commodity Index. Each portfolio rebalances to an equal weighting on a quarterly basis and is composed of individual commodity indices using the Bloomberg Commodity Index family as proxy.

A boost with the long only contrarians

In our January paper, our analysis shows that the ETFS contrarian model and inventories are the best performers, posting an annual return of 10.8% on average since 2000. Positioning and roll yield come next with 7.9% per year while momentum underperforms the other model variants with a return of 4% per year.

(Click to enlarge)

*Long only 3 month forward is the long only version of the ETFS contrarian model composed of Bloomberg commodity single indices 3 month forward. Source: ETF Securities, Bloomberg

The ETFS contrarian model outperformed the benchmark, the Bloomberg Commodity Index 3 month forward. The annual return of the model is double the return of the benchmark index over the past 16 years for similar level of volatility, bettering its Sharpe ratio of 0.24 by more than double (0.60).

A cushion with the long short contrarians

So far we looked at the long only version of the ETFS contrarian model where commodities with indicators having a positive impact on prices are simply removed from the portfolio during the rebalancing period. Shorting these commodities actually reduces the annual return of the ETFS contrarian model from 10.8% to 8.3% over the past 16 years.

Although the annual return is lower as shown in the chart below, the volatility of the long short version is also drastically lower than the volatility of the long only version. Adding a short exposure to the model clearly minimises the impact of events such as the financial crisis in 2008 or the slump in commodity prices since 2011.

(Click to enlarge)

As a result, the Sharpe ratio increases from 0.24 for the commodity benchmark, to 0.60 for the ETFS long only contrarian model due to higher return, and to 0.78 for the ETFS long short contrarian model thanks to higher return and much lower volatility.

(Click to enlarge)

*Long only and long short front month are the long only and long short versions of the ETFS contrarian model exposed to Bloomberg commodity single indices. Source: ETF Securities, Bloomberg

Moving along the futures curves

The total return of an investment into commodities depends on its exposure along the futures curve. The dotted lines in the below chart are portfolios exposed to contracts at the short end of the curve while plain lines are portfolios exposed to the 3 month forward futures contracts, our main focus in this note so far.

(Click to enlarge)

Source: ETF Securities, Bloomberg

While an exposure to front month futures contracts is detrimental to the return of the ETFS long only contrarian model, it actually improves the return of the long short portfolio over the long run.

Efficient also during commodities rout

In this section, we have tested our model over a shorter period, from 2011 to 2016 when commodities were performing poorly and observed similar results: a strong improvement of the Sharpe ratio when implementing the long short version of the ETFS contrarian model.

During these years, the commodity indices were posting an annual return of -11% on average. With the ETFS long only contrarian model, investors were able to reduce the negative return to around -7% and completely erase their loss with the ETFS long short contrarian model. In addition to stronger risk/return ratio, the ETFS long short contrarian model also provides more efficient protection against market downturns.

(Click to enlarge)

*Based on the ETFS contrarian model only. Source: ETF Securities, Bloomberg

The above chart shows that fees are likely to have minimal impact on the contrarian portfolio performance. Portfolios composed of commodity ETPs (exchange traded products), on the right hand side, are priced based on the ETP net asset value (NAV) where management fee, swap fee and licence fee are embedded. We can see that the return of the long short contrarian model is down 70bps compared to the portfolio exposed to the front month commodity indices while there is no visible impact on the long only contrarian model. Execution fees applied to portfolios using ETPs also have negligible impact on performance. This is due to the model rebalancing on a quarterly basis and therefore involving a small number of transactions per year.

To sum up, the contrarian model drastically improves the risk/return profile of a portfolio of commodities over the long and short term. The long only contrarian models tend to outperform long short contrarian models in the long run. However, the benefit of the long short contrarian models is much higher thanks to drastically lower volatility. Between 2011 and 2016, the long short contrarian models also provide an effective protection against commodities rout with implementation costs likely to have minimal impact on the model performance.

For more information contact

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com

Important Information

General

This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority.

This is a strictly privileged and confidential communication between ETFS UK and its selected client. This communication contains information addressed only to a specific individual and is not intended for distribution to, or use by, any person other than the named addressee. This communication (i) is provided for informational purposes only, (ii) should not be construed in any manner as any solicitation or offer to buy or sell any securities or any related financial instruments, and (iii) should not be construed in any manner as a public offer of any securities or any related financial instruments. If you are not the named addressee, you should not disseminate, distribute or copy this communication. Please notify the sender immediately if you have mistakenly received this communication. When being made within Italy, this communication is for the exclusive use of the ”qualified investors” and its circulation among the public is prohibited.

This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States.

This document may contain independent market commentary prepared by ETFS UK based on publicly available information. ETFS UK does not warrant or guarantee the accuracy or correctness of any information contained herein and any opinions related to product or market activity may change. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data.

Any historical performance included in this document may be based on back testing. Back tested performance is purely hypothetical and is provided in this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance.

Historical performance is not an indication of or a guide to future performance.

The information contained in this communication is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision.

ETFS UK is required by the United Kingdom Financial Conduct Authority (”FCA”) to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit.

Risk Warnings

Any products referenced in this document are generally aimed at sophisticated, professional and institutional investors. Any decision to invest should be based on the information contained in the prospectus (and any supplements thereto) of the relevant product issue. The price of any securities may go up or down and an investor may not get back the amount invested. Securities may valued in currencies other than those in which there are priced and will be affected by exchange rate movements. Investments in the securities which provide a short and/or leveraged exposure are only suitable for sophisticated, professional and institutional investors who understand leveraged and compounded daily returns and are willing to magnify potential losses by comparison to investments which do not incorporate these strategies. Over periods of greater than one day, investments with a short and/or leveraged exposure do not necessarily provide investors with a return equivalent to a return from the unleveraged long or unleveraged short investments multiplied by the relevant leverage factor. Investors should refer to the section entitled ”Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in any securities referenced in this communication.

If you have any questions please contact ETFS UK at +44 20 7448 4330 or info@etfsecurities.com for more information.

How to make the best of commodities: the contrarian model

How to make the best of commodities: the contrarian model

ETF Securities Asset Allocation Research –  How to make the best of commodities: the contrarian model

Summary

  • Commodities used in a passive asset allocation strategy have been underperforming other asset classes for a fifth consecutive year in 2015.
  • An exposure to commodities in a balanced or growth portfolio of equities and bonds can still benefit investors with a long-term investment horizon.
  • An active strategy such as the contrarian model could have provided an effective protection against the commodities rout over the past 5 years.

Download the complete report (.pdf)

Commodities in a passive strategy

While commodities have performed poorly over the past few years, by including commodities in a portfolio of bonds and equities (for example using the Bloomberg Commodity Index) could have improved returns over the past 25 years.

Commodities have historically had a low correlation with other asset classes. Driven by commodity-specific factors, they tend to provide higher return for the same level of risk when added in a standard portfolio of stocks and bonds.

Using a portfolio of stocks and bonds as the benchmark, we run a passive portfolio model under three different styles: cautious, balanced and growth. The portfolios follow a strategic asset allocation model that rebalances every quarter to the original weighting over a period of 25 years.

(Click to enlarge)

*Weights at the bottom refer to the weight of bonds. Portfolio 1 has 10% in commodities.
Portfolio 2 has 10% in commodities ex-energy. MSCI World is the proxy for equities, Barclays
Capital Bond Composite-Global Index for bonds, Bloomberg Commodity Index 3 Month
Forward for commodities and Bloomberg ExEnergy Subindex 3 Month Forward for
commodities ex-energy. Source: ETF Securities, Bloomberg

Our analysis shows that commodities don’t add any value in a cautious portfolio where the allocation into bonds is the highest (80%). While balanced and growth portfolios are by nature more volatile than the cautious portfolios, both substantially outperformed cautious portfolios by 20% and 23%, respectively, on average. In the balanced and growth portfolios, allocating 10% into commodities enhances the portfolio Sharpe ratio regardless of whether the commodity basket includes energy or not.

Role of commodities in a portfolio

The below chart illustrates how commodities in a passive asset allocation model have played a crucial role in enhancing the Sharpe ratio of a standard portfolio of equities and bonds between 1991 and 2005. During these years, commodities posted strong returns for a level of risk similar or lower than stocks. Between 2006 and 2010, the optimal weight of commodities fell to 1.5% and then dropped to nearly zero over the past 5 years to December 2015.

(Click to enlarge)

* MSCI World is the proxy for equities, Barclays Capital Bond Composite-Global Index for bonds and Bloomberg Commodity Index 3 Month Forward for commodities. The risk free rates are equal to 1.39% (1991-1995), 0.92% (1996-2000), 0.90% (2001-2005), 0.65% (2006- 2010) and 0.08% (2011-2015) (5 years average of US 10 years rate). Source: ETF Securities, Bloomberg

Our analysis shows that applying a strategic asset allocation model to commodities works well during periods of strong performance. The years between 2001 and 2005 for instance were ‘the golden years’ for commodities. However, during bear market periods such as that over the past five years, actively managed strategies would have provided better returns than the passive Bloomberg Commodity Index 3 Month Forward.

Examples of active strategies

An active strategy or a tactical asset allocation typically involves getting exposure to riskier securities in order to increase the potential return of a portfolio. An actively managed portfolio generally rebalances the weights based on various types of signals and could involve the introduction of short selling and leverage.

A short exposure to commodities enables investors to benefit from negative spot return and a futures curve in contango. An effective strategy is then to play the shape of the futures curve. In this strategy, investors are short commodities in contango and long commodities in backwardation. Implementing this strategy on futures contracts at the short end of the curve increases the portfolio return significantly but also its volatility compared to traditional commodity indices.

Another interesting strategy is the calendar spread which consists in getting exposure to futures contracts further out on the curve while selling near-term contracts at the same time. Short maturity futures contracts are more sensitive to price movement and roll costs than futures contracts that expire in 6 months plus. Commodity indices exposed to contracts with longer lifespan tend to enhance investors risk/return profile.

The contrarian portfolio

The contrarian model is a hybrid long only asset allocation strategy based on the contrarian reading of four indicators: inventories, positioning, roll yield and price momentum. We derived five portfolios from the model: one based on the contrarian reading of each indicator and one based on the contrarian reading of all four indicators combined. In the latter, each commodity is scored based on how each of their respective four indicators has recently evolved. The selected commodities are then equally weighted in the portfolio with the selection reassessed and rebalanced every quarter.

(Click to enlarge)

*BCOMF3= Bloomberg Commodity Index 3 Month Forward, Global stocks = MSCI World and Global bonds = Barclays Capital Bond Composite-Global Index. Source: ETF Securities, Bloomberg

Over the past 15 years, the best performing contrarian portfolio is the portfolio based on the contrarian reading of the roll yield. Exposed to commodities in contango between its front and third month contracts, the portfolio has outperformed other contrarian portfolios by 32.6% on average. Its annual return over the past 15 years is on average 5 times higher than the annual return of existing commodity indices and global stocks and 4 times higher than the annual return on global bonds.

(Click to enlarge)

*CMCI = UBS Bloomberg CMCI Composite, DBLCI = Deutsche Bank Liquid Commodities Index. Source: ETF Securities, Bloomberg

Over the past 5 years, while enhanced or optimised commodity indices are falling 12% per year on average, the momentum and roll yield portfolios have been flat. Global stocks rose 4.4% and global bonds increased by 2.4% per year over the same period.

(Click to enlarge)

*Risk-free rates equal to 1.94% (2001-2015) and 0.38% (2011-2015). Source: ETF Securities, Bloomberg

Over both periods, the volatility of contrarian portfolios has been close to the volatility of existing commodity indices and global stocks. Combined with strong returns, the average Sharpe ratio of the contrarian portfolios is 0.78 over 15 years, 11.3% higher than the Sharpe ratio of global bonds.

All the charts and performance data in this note are based on the price of commodity front month futures contracts excluding fees. Introducing a fixed execution fee of US$1 per day per contract does not have any significant impact on each portfolio annualised return over 5 or 15 years.

To conclude, there are great benefits of taking a contrarian perspective when reading certain indicators such as roll yield. During commodity bull periods, between 2001 and 2010, each contrarian portfolio outperformed other asset class indices by far including commodity. Like existing indices, the model works best during periods of strong momentum for commodities. However, the overall model also provides an effective protection against commodity market downturns such as that over the last 5 year rout.

For more information contact

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com

Important Information

General

This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority.

This is a strictly privileged and confidential communication between ETFS UK and its selected client. This communication contains information addressed only to a specific individual and is not intended for distribution to, or use by, any person other than the named addressee. This communication (i) is provided for informational purposes only, (ii) should not be construed in any manner as any solicitation or offer to buy or sell any securities or any related financial instruments, and (iii) should not be construed in any manner as a public offer of any securities or any related financial instruments. If you are not the named addressee, you should not disseminate, distribute or copy this communication. Please notify the sender immediately if you have mistakenly received this communication. When being made within Italy, this communication is for the exclusive use of the ”qualified investors” and its circulation among the public is prohibited.

This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States.

This document may contain independent market commentary prepared by ETFS UK based on publicly available information. ETFS UK does not warrant or guarantee the accuracy or correctness of any information contained herein and any opinions related to product or market activity may change. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data.

Any historical performance included in this document may be based on back testing. Back tested performance is purely hypothetical and is provided in this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance.

Historical performance is not an indication of or a guide to future performance.

The information contained in this communication is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision.

ETFS UK is required by the United Kingdom Financial Conduct Authority (”FCA”) to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit.

Risk Warnings

Any products referenced in this document are generally aimed at sophisticated, professional and institutional investors. Any decision to invest should be based on the information contained in the prospectus (and any supplements thereto) of the relevant product issue. The price of any securities may go up or down and an investor may not get back the amount invested. Securities may valued in currencies other than those in which there are priced and will be affected by exchange rate movements. Investments in the securities which provide a short and/or leveraged exposure are only suitable for sophisticated, professional and institutional investors who understand leveraged and compounded daily returns and are willing to magnify potential losses by comparison to investments which do not incorporate these strategies. Over periods of greater than one day, investments with a short and/or leveraged exposure do not necessarily provide investors with a return equivalent to a return from the unleveraged long or unleveraged short investments multiplied by the relevant leverage factor. Investors should refer to the section entitled ”Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in any securities referenced in this communication.

If you have any questions please contact ETFS UK at +44 20 7448 4330 or info@etfsecurities.com for more information.

Strong price performance drives gold rush

Strong price performance drives gold rush

Commodity ETP Weekly –  Strong price performance drives gold rush

Highlights

  • Gold inflows surge to highest level since August 2015 as the metal remains one of the best performing assets year-to-date.
  • Oil inflows continue for the eighth consecutive week as investor’s position for continued recovery.
  • Inflows into broad commodity baskets rose to a five week high as negative sentiment towards the beleaguered asset class begins to thaw.

Download the complete report (.pdf)

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Gold ETP inflows of US$108.5mn last week were the highest since August 2015. Gold has been one of the best performing assets this year and is up 9.1% year-to-date, compared to S&P 500 (-6.3%) and Bloomberg Commodity Index (-3.2%). Volatile cyclical asset performance has driven investors toward the defensive asset, while a weakening US dollar has been supportive for gold’s performance in dollar terms. Although investor fears about weaker real economic data maybe somewhat misplaced, the headlines of weak durable goods orders and below-expectation payroll figures could add to US dollar negativity. We believe there will be a brief period in which US dollar will appreciate again as investors realize the their reading of economic data and market volatility does not tally with the Fed’s view that the labour market is tightening and price pressures are mounting. However, once the market and Fed thinking are once again aligned, US dollar will depreciate again (following a familiar historic pattern of selling-off when rate increases crystalise).

Long oil ETPs received US$37.9mn, marking the eighth consecutive week of inflows. Furthermore short oil ETPs saw US$10.2mn of outflows. Brent oil gained 1.7% as investors remained optimistic that Venezuela would be able to convince Saudi Arabia to help reduce production at their meeting yesterday. However, there has been very little sign that the meeting has yielded any results and we expect Brent to decline in the very short-term and return to trading at a discount to WTI. WTI, being a more US-focused benchmark, lacked the same tail-wind as Brent last week and fell 4.5% last week. Over the course of this year we, expect global oil to be in a supply deficit as non- OPEC oil production is cut while demand continues to rise, which will provide an upward catalyst to prices.

Inflows into diversified commodity baskets hit a 4 week high. After a rocky start to the year for cyclical assets, most industrial metals and a broad range of agricultural commodities posted a gain in the past week. That is an encouraging sign that markets are looking past the weakness in some economic indicators that were too heavily influenced by weather and other idiosyncratic factors. However, with the Chinese New Year starting and the associated lack of data published during this period, we could see some more volatility in industrial metal prices as speculation of Chinese weakness cannot be quelled by facts. Inflows across diversified commodity baskets amounted to US$21.7mn last week.

Profit-taking saw US$12.4mn flow out of aluminium ETPs. Aluminium prices bounced 1.1% last week and are up 4.6% in the past month. The recent price moves gave some investors an opportunity to take profit.

Key events to watch this week. Janet Yellen, will testify to Congress, providing investors some insight into the Fed Chair’s thoughts on the state of the US economy

For more information contact

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com

Important Information

General

This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority.

This is a strictly privileged and confidential communication between ETFS UK and its selected client. This communication contains information addressed only to a specific individual and is not intended for distribution to, or use by, any person other than the named addressee. This communication (i) is provided for informational purposes only, (ii) should not be construed in any manner as any solicitation or offer to buy or sell any securities or any related financial instruments, and (iii) should not be construed in any manner as a public offer of any securities or any related financial instruments. If you are not the named addressee, you should not disseminate, distribute or copy this communication. Please notify the sender immediately if you have mistakenly received this communication. When being made within Italy, this communication is for the exclusive use of the ”qualified investors” and its circulation among the public is prohibited.

This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States.

This document may contain independent market commentary prepared by ETFS UK based on publicly available information. ETFS UK does not warrant or guarantee the accuracy or correctness of any information contained herein and any opinions related to product or market activity may change. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data.

Any historical performance included in this document may be based on back testing. Back tested performance is purely hypothetical and is provided in this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance.

Historical performance is not an indication of or a guide to future performance.

The information contained in this communication is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision.

ETFS UK is required by the United Kingdom Financial Conduct Authority (”FCA”) to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit.

Risk Warnings

Any products referenced in this document are generally aimed at sophisticated, professional and institutional investors. Any decision to invest should be based on the information contained in the prospectus (and any supplements thereto) of the relevant product issue. The price of any securities may go up or down and an investor may not get back the amount invested. Securities may valued in currencies other than those in which there are priced and will be affected by exchange rate movements. Investments in the securities which provide a short and/or leveraged exposure are only suitable for sophisticated, professional and institutional investors who understand leveraged and compounded daily returns and are willing to magnify potential losses by comparison to investments which do not incorporate these strategies. Over periods of greater than one day, investments with a short and/or leveraged exposure do not necessarily provide investors with a return equivalent to a return from the unleveraged long or unleveraged short investments multiplied by the relevant leverage factor. Investors should refer to the section entitled ”Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in any securities referenced in this communication.

If you have any questions please contact ETFS UK at +44 20 7448 4330 or info@etfsecurities.com for more information.

Fears of China slowdown causes a rollercoaster week of trade

Fears of China slowdown causes a rollercoaster week of trade

ETF Securities Commodity ETP Weekly – Fears of China slowdown causes a rollercoaster week of trade

Highlights

•  Oil ETPs see nine consecutive weeks of inflows.

•  Industrial metals ETPs witness highest outflows in 7 weeks, led by ETFS Copper (COPA).

•  Gold ETPs see the second consecutive week of inflows of USD$19.1mn.

•  Outflows from palladium ETPs continue for the fourth consecutive week.

•  Investors trimmed exposure to ETFS Agriculture (AIGA) by US$13.7mn, the highest level in 7 weeks.

Download the complete report (.pdf)

Like most cyclical assets, commodities had an especially volatile week. Fears of a China slowdown following an equity market rout, led to the initial commodity price declines. However, the Bloomberg Commodity Index ended the week higher, driven by gains in oil and copper. Oil prices marked their strongest three day rally since 1990 after speculation the Organization of the Petroleum Exporting Countries may be considering cutting production. All eyes will be on the latest US jobs data and guidance by the ECB policymakers on quantitative easing amidst the global market rout.

Oil ETPs see nine consecutive weeks of inflows. After nose-diving to their lowest levels since 2009 last Tuesday, WTI and Brent crude oil prices staged their biggest one day surge on Thursday advancing 10 percent to US$43.5 and US$48.5 respectively. Over the past three trading sessions, WTI oil has surged 27% on hopes that OPEC will consider cutting production. Long oil ETPs attracted US$60.1mn after better than expected US GDP data revived hopes of strong demand. In addition, Royal Dutch Shell Plc’s force majeure on 2 pipelines cutting shipments from Nigeria and a decline in US crude oil stocks by 5.5mn barrels last week lent support to oil prices. ETFS Daily Leveraged Natural Gas (LNGA) saw its second week of inflows (of US$2.7mn) as bargain hunters attempt to capture any price recovery before the high demand summer driving season draws to a close.

Industrial metals ETPs witness highest outflows in 7 weeks, led by ETFS Copper (COPA). Despite copper ending the week higher, its volatile price and fears of a China slowdown led to US$16.5mn redemptions in COPA. Codelco, the world largest copper producer was the latest to join the industry wide effort to reduce capex as prices hover around 6 year lows.

Gold ETPs see the second consecutive week of inflows of USD$19.1mn. Gold maintained its safe haven status amidst the volatility in cyclical assets. Investors bought US$15.2mn physical gold ETPs last week. Despite the futures market and consensus expectations for a US rate increase being pushed out, gold fell 2.5% as a stronger-than-expected GDP reading for Q2 2015 underscores the strength in the underlying economy.

Outflows from palladium ETPs continue for the fourth consecutive week. Futures market net speculative long positions in palladium have dropped to a 3 year low at 5700 contracts highlighting how the fears of a weakening Chinese economy are denting demand for the most industrialised precious metal.

Investors trimmed exposure to ETFS Agriculture (AIGA) by US$13.7mn, the highest level in 7 weeks. Sugar was the best performer among commodities as wetter weather in Brazil and fears of the El Nino impacting production in India and Thailand lent support to price. Hot dry weather impacted EU supply, benefiting corn prices as the International Grains Council (IGC) forecasted a supply deficit of 4mn tons. Wheat prices came under pressure as the IGC predicted an annual surplus of 4mn tons as global wheat production is expected to reach last year’s record level 10mn tons.

Key events to watch this week. The ISM Manufacturing Index, the Federal Reserve’s beige book and the jobs data released remain in focus. Positive surprises in these indicators could provide insight into Federal Reserve’s interest rate trajectory.

Video Presentation

Aneeka Gupta, Research Analyst at ETF Securities provides an analysis of last week’s performance, flow and trading activity in commodity exchange traded products and a look at the week ahead.

For more information contact

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com

Important Information

General

This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority.

This is a strictly privileged and confidential communication between ETFS UK and its selected client. This communication contains information addressed only to a specific individual and is not intended for distribution to, or use by, any person other than the named addressee. This communication (i) is provided for informational purposes only, (ii) should not be construed in any manner as any solicitation or offer to buy or sell any securities or any related financial instruments, and (iii) should not be construed in any manner as a public offer of any securities or any related financial instruments. If you are not the named addressee, you should not disseminate, distribute or copy this communication. Please notify the sender immediately if you have mistakenly received this communication. When being made within Italy, this communication is for the exclusive use of the ”qualified investors” and its circulation among the public is prohibited.

This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States.

This document may contain independent market commentary prepared by ETFS UK based on publicly available information. ETFS UK does not warrant or guarantee the accuracy or correctness of any information contained herein and any opinions related to product or market activity may change. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data.

Any historical performance included in this document may be based on back testing. Back tested performance is purely hypothetical and is provided in this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance.

Historical performance is not an indication of or a guide to future performance.

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Risk Warnings

Any products referenced in this document are generally aimed at sophisticated, professional and institutional investors. Any decision to invest should be based on the information contained in the prospectus (and any supplements thereto) of the relevant product issue. The price of any securities may go up or down and an investor may not get back the amount invested. Securities may valued in currencies other than those in which there are priced and will be affected by exchange rate movements. Investments in the securities which provide a short and/or leveraged exposure are only suitable for sophisticated, professional and institutional investors who understand leveraged and compounded daily returns and are willing to magnify potential losses by comparison to investments which do not incorporate these strategies. Over periods of greater than one day, investments with a short and/or leveraged exposure do not necessarily provide investors with a return equivalent to a return from the unleveraged long or unleveraged short investments multiplied by the relevant leverage factor. Investors should refer to the section entitled ”Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in any securities referenced in this communication.

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