No End In Sight For Commodity ETFs’ Painful Slide

Price depreciation and continued outflows have made for a tough few years.

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Editor-in-Chief
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Reviewed by: Drew Voros
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Edited by: Drew Voros

With gold falling precipitously the last few days, and now with oil joining the price cascade, it is becoming tougher to find a commodity bull than a bull in a china shop.

But preceding this recent selloff, non-equity commodity ETFs have seen a steady stream of outflows for years. Investors continue to abandon the space as prices across the commodity landscape wilt.

Assets Fall In Half
In the last three years non-equity commodity ETFs have gone from holding $107 billion in assets under management to a little more than $50 billion as of today, according ETF.com data.

While it is not surprising to see outflows follow price declines in any investment security, the stretch of low performance and continued outflows is somewhat unprecedented in the $2.2 trillion ETF space, where annual growth across the industry has been in the double digits.

GLD Takes Brunt Of Ouflows

At one point a few years ago SPDR Gold (GLD | A-100), now with $25 billion in AUM, was the biggest ETF in the world, even surpassing SPDR S&P 500 (SPY | A-99) that now has $188 billion in assets.

But the last three years have not been kind to GLD, which lost half its AUM in that period. Three of the biggest four commodity ETFs – GLD, iShares Gold Trust (IAU | A-99) and PowerShares DB Commodity Tracking (DBC | C-61) – have all seen outflows during the last three years.

Oddly, the third largest commodity ETF, iShares Silver Trust (SLV | A-99) has seen inflows of $700 million while losing 46 percent of its value in that time, more than the other three funds.

Equity Commodity ETFs See Inflows
In contrast equity commodity ETFs have seen just the opposite in terms of inflows. For instance Energy Select SPDR (XLE | A-96), which has $12 billion in AUM and has seen half of that flow in the last 3 years, and Market Vectors Gold Miners (GDX | C-78) with $ 5 billion has a net inflow of $ 5 billion in the last 3 years, have also underperformed, but investors seem less deterred.

Here, however, investors continue to put money into these funds despite similar underperformance as their non-equity brethren. GDX is down 46 percent in the last three years and XLE has shed 25 percent of its value.

Charts courtesy of StockCharts.com

Outlook Remains Gloomy
On Monday commodity prices approached a 13-year low. The excess return Bloomberg Commodity index, which tracks a basket of 22 materials, was on course for its lowest close in 13 years as strengthening dollar weighed on well-supplied markets for energy, metals and grains, according to the Financial Times.

And while after this multi-year downtrend a revision of the mean upward would seem logicial, fundamentals are telling a different story.

"After a strong start to the second quarter, the commodity rally has fizzled out and the outlook for the third quarter is a difficult one," Kevin Norrish of Barclays told FT. "[There are] risks from the macro backdrop and the supply side."

Drew Voros has nearly 30 years' experience in financial journalism. He was a longtime business editor for the Oakland Tribune and sister papers of the Bay Area News Group, and finance writer for the Hollywood trade publication Variety. Voros' past roles have also included editor-in-chief at etf.com and ETF Report.