(Kitco News) - Inflows into commodity markets fell sharply as the first half of 2011 wrapped up, ending the first six months of the year at $13 billion, down from $29 billion in the first half of 2010, according to analysis by Barclays Capital.
Issuance of commodity structured notes totaled $6.3 billion and accounted for the largest chunk of fresh inflows in the first half of 2011 for the first time since the financial crisis, with inflows into commodity indices at $4.8 billion and commodity-linked exchange-traded products at $1.6 billion accounting for the rest.
As a result, total commodity assets under management ended the first half of 2011 at $410 billion, only $34 billion higher than at the start of the year, with $13 billion due to fresh inflows and the rest due to price appreciation, Barclays said. On the year-to-date, ETP assets under management are up by $26 billion to $181 billion, the commodity medium-term notes asset under management is up by $6 billion to $72 billion and the index funds asset under management rose by $2 billion to $157billion.
The bank noted that the weakness came mostly in the middle of the second quarter, as first quarter flows totaled $16.9 billion. “It was not until mid second-quarter that this picture started to change; second quarter 2011 saw the first quarterly outflow from the asset class since the financial crisis and the largest outflow in over six years,” the firm said.
Barclays said the action in the second quarter of 2011 offers some interesting trends. “One such trend is the resurgence of precious metals, which started the year on a particularly weak note and in the second quarter was the only sector to see net inflows. Indeed, the environment of heightened macroeconomic uncertainty has once again benefitted precious metals as a safe haven and financial hedge,” the bank said.
Even though inflows into commodities overall fell in the second quarter, they caution that it doesn’t mean a loss of interest in commodities as an asset class. Rather, the activity mirrors concerns across the financial markets and are not exclusive to commodities. “Markets are nervous, investors are puzzled and overall the environment is one of anxiousness amid the lack of any clear trend. In this context, it is hardly surprising that investors, particularly, long-term strategic investors, pause for thought while they seek new ways of getting exposure to an asset class that has matured,” Barclays said.
By Debbie Carlson of Kitco News dcarlson@kitco.com
Courtesy: www.kitco.com
