Commodities ETFs Give Way In May

June 04, 2012

Commodities outflows in May tell the tale of a global economy on the brink.


Commodities ETFs bled more than $1.6 billion in assets in May, as investors expressed their views that a decelerating global economy doesn’t bode well for aggregate demand moving forward.

Futures-based strategies were particularly vulnerable to the investor exodus from an asset class they see as a big loser if the global economy doesn’t stabilize soon. That’s because, unlike equities-linked commodities ETFs, future-based strategies offer more direct exposure to the prices of commodities themselves.

Funds like the $5.5 billion PowerShares DB Commodities Index Tracking Fund (NYSEArca: DBC), a broad take on the commodities space, lost some $170 million in assets in May, or nearly 3 percent of its end-of-month assets, according to data compiled by IndexUniverse.

Meanwhile, the United States Commodity Index Fund (NYSEArca: USCI) bled $5.8 million, worth 1.5 percent of its $387.7 million assets as of May 31.

A global economy where growth is in peril will hurt demand for raw materials and goods. Europe’s ongoing efforts to resolve the indebtedness of Greece, Spain and Italy, as well as growing concerns about growth in the U.S. and China’s slowing demand, have all tainted the outlook for consumption of everything from oil to steel.

Regarding crude oil, nearby crude futures on the New York Mercantile Exchange have dropped well below the $90/barrel level, giving up more than 12 percent in value since the beginning of the year. Natural gas prices are also under siege.

The PowerShares DB Oil Fund (NYSEArca: DBO), using a strategy that owns different oil contracts along the NYMEX futures curve, suffered outflows of $111.6 million—or more than a fifth of its $513.9 million in assets at the end of May.

Commodities-Focused Firms Bore The Brunt

ETF providers that focus their products primarily on this asset class saw the exodus firsthand.

VelocityShares, the exchange-traded note firm known for volatility products that rolled out a roster of commodities-linked strategies in February, including bull-and-bear pairs that tap into energy and metals, saw its assets shrink by nearly 20 percent.

That earned VelocityShares the distinction of being the provider with the biggest asset outflow in May in percentage terms.

Likewise, Teucrium Trading, the Santa Fe, N.M.-based fund provider behind futures-based commodities ETFs such as the Teucrium Agricultural Fund (NYSEArca: TAGS) and corn-, wheat- and sugar-focused ETFs, gave up more than 16 percent of its total assets under management in May.

Equities-Linked Funds

Generally, equities-linked commodities ETFs fared a little better. One fund in particular broke away from the herd and managed to gather new assets rather than lose ground.

That was the FlexShares Morningstar Global Upstream Natural Resources Index Fund (NYSEArca: GUNR), which attracted $49 million in May even while the fund fell nearly 10 percent as it got caught up in a market that overall fell more than 6 percent in May.

GUNR serves up exposure to global companies involved with production and distribution of natural resources from agricultural goods to energy to metals, timber and water.

FlexShares, Northern Trust’s ETF unit, saw its total assets grow 12.6 percent in May to $854.9 million.

Unlike GUNR, other funds such as the Market Vectors Agribusiness ETF (NYSEArca: MOO) and the Market Vectors-RVE Hard Assets Producers ETF (NYSEArca: HAP) saw outflows of $36.8 million and $11.9 million, respectively, in the last month.


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