Broad commodity exchange-traded products (ETPs) returned to favour in the third quarter, attracting some $712 million according to BlackRock data, as investors sought out assets thought likely to benefit from a pick up in economic growth.
Equity ETPs also continued to do well, capturing some $28.7 billion in September, whilst fixed income ETP inflows totalled $6.6 billion. Overall, global ETP inflows reached $35 billion in September.
But money continued to bleed from gold ETPs, which racked up $1.2 billion in outflows in September, taking third-quarter redemptions to $4.4 billion. This was despite the U.S. Federal Reserve's surprise announcement in mid-September that it would continue with its bond-buying programme.
"September was a challenging month for gold prices, which fell approximately 4.9 percent," said Dodd Kittsley, global head of ETP research at BlackRock.
"Over the short term, we may see further volatility around current levels as headwinds remain, including potential QE tapering later this year, which may weigh on prices," he said.
ETPs, whose value is linked to moves in their underlying assets, are an easy route into commodities for investors, and allow asset managers to make swift tactical switches.
Nick Brooks, head of research and investment strategy at ETF Securities, said that steady improvement in the U.S. manufacturing sector and increased confidence that China would maintain healthy economic growth had encouraged strong inflows to the broad basket commodity ETPs in September.
"Investors have more recently looked for laggard cyclical assets, and commodities fall into that category," Brooks said. "This year U.S. equities have done very well and some investors believe it's getting a bit stretched so they are looking for other cyclical assets that haven't run yet."
Industrial metals failed to attract much interest, however. The segment ended the quarter with $197 million of outflows. Brooks said the base metals were seen as less attractive for fundamental supply and demand reasons.
"Aluminium has been in over-supply and analysts have forecast surpluses in copper," he said. As a result, investors have preferred to play the pickup in economic growth through the broad ETPs, silver and platinum.
Silver enjoyed inflows of $736 million in the third quarter, according to BlackRock data. Year to date, inflows stand at $1.2 billion, compared with outflows of $33 billion from gold ETPs.
"We attribute this divergence in part to the higher sensitivity of silver to global economic activity due to its higher industrial usage," Kittsley said.
APPEALINGLY VOLATILE
The price of silver has fallen more than 50 percent from its peak to around $20 an ounce, which Brooks said was roughly equivalent to the all-in cost of production. "That's viewed as a pretty firm medium-term floor."
Brooks added that the volatility of silver appealed to some investors: "It rises very sharply once it gets moving."
Agriculture ETPs also found favour, ending the quarter in positive territory with $99 million of net inflows. Brooks said that sharp price declines and negative speculative futures positioning had attracted investors willing to wait some time for prices to rise back towards the mean.
He added that coffee ETPs had attracted a bumper $70 million in the third quarter after the price of Arabica coffee hit a four-year low on the back of a record crop in Brazil.
Energy ETPs ended the quarter in positive territory, with $261 million of inflows, but it was a bumpy ride with competing factors in play. Crude oil ETPs suffered outflows in September as momentum players took profits following a rally in U.S. crude prices earlier in the quarter.
Going into October, the impasse over the U.S. debt ceiling has presented investors with a fresh dilemma. For the time being, they seem happy to continue increasing their positions in the beaten-down cyclicals, but if the stalemate persists, gold is likely to move back into the spotlight, Brooks said.
"The battle over the U.S. debt ceiling has led to increased uncertainty regarding equity markets among investors," BlackRock's Kittsley added. "Gold has historically been used as a safe-haven vehicle during such periods and may benefit as investors seek to diversify their risk."
At the end of September, BlackRock's data covered 919 commodity ETPs worldwide, worth some $133.8 billion. Data from ETF Securities also reflect global flows, with assets totalling $135.9 billion.