Money flows into commodities as growth fears start to ease
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More than US$350 million (S$469.46 million) was put into 20 ETFs that track broad-based commodity indexes in July.
PHOTO: REUTERS
SINGAPORE – Traders have piled into exchange-traded funds (ETFs) covering oil to metals and grains as investors wager that the global economy is set to avoid a painful recession, despite the prospect of higher interest rates.
More than US$350 million (S$469.8 million) was put into 20 ETFs that track broad-based commodity indexes in July, only the second month of inflows in 2023, according to data compiled by Bloomberg. That follows four months of withdrawals.
“The past year has seen a mass exodus out of commodity index products due to fears of recession and falling inflation expectations,” said Mr Ryan Fitzmaurice, lead index trader at commodities brokerage Marex Group.
“However, asset allocators have started rotating back into commodity index ETF.”
The largest cross-commodity fund, Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF, continued to see inflows at the start of August, taking in around US$33 million on Tuesday.
The Bloomberg Commodity Spot Index, a gauge of the value of the world’s raw materials, in July rose 5.8 per cent, the biggest advance since March 2022.
The gains were led by oil and its derivative products, which have climbed on supply cuts from key Opec+ producers and an improved macroeconomic outlook.
Other commodities such as copper, gold, cotton and corn also rose.
China’s uncertain economic outlook is still presenting headwinds and investors are pulling money from some ETFs.
Oil funds recently posted the largest week of outflows in more than a year after prices rallied above US$80 a barrel.
More broadly, the estimated value of open interest across global commodity markets rose through late July, reaching a 13-month high of US$1.31 trillion, according to a note from JPMorgan Chase & Co dated July 31.
That includes US$566 billion for energy markets as at July 28, the bank said.
“Our economists note that positive surprises on growth and inflation are spurring soft-landing hopes, and we continue to see commodities as an under-loved asset class,” analysts including Ms Tracey Allen and Ms Natasha Kaneva wrote. BLOOMBERG
