Commodity exchange-traded products (ETPs) have experienced a strong couple of weeks and this trend is likely to remain even if commodity growth stalls, according to Lyxor's head of ETF strategy.
Last week Lyxor reported that assets in commodity ETPs outstripped fixed income for the first time in the European market, driven by rising precious metals prices. Assets in commodity ETPs reached €42.8 billion in the week to 19 August.
Interest in commodities remained high in the fourth week of August, with Lyxor reporting that trading in commodity ETPs was up more than 71% on the previous week. But it is not just precious metals behind these figures.
"Interestingly, there have also been some flows into broad, diversified commodities," says Nizam Hamid, head of ETF strategy at Lyxor.
He says that interest in diversified commodities will remain strong. "People are looking at the diversification tools in portfolios; that lack of correlation between commodities and some of the other asset classes people are invested in.
"It is part of a longer trend... Broad diversification is an institutional trend... people [are] looking at the whole stream of commodities rather than a single commodity."
Recent equity market volatility has driven inflows into commodities, especially precious metals, but there are other factors in play: "People are getting used to some of the newer ETFs where you have an optimised approached to managing roll costs in the commodity space... that in itself is encouraging people to look at the asset class."
In September's market perspective from iShares, Russ Koesterich, iShares chief investment strategist questioned whether commodities can remain strong despite low inflation in developed countries. However, low interest rates make a good case for investment, he reports.
"To the extent long-term rates remain low or negative - even in the context of a slow growth economy - this may be the most important consideration for the asset class in general, and for gold in particular."
Even if commodities experience a turn around and prices start to fall "the diversified trend is broader and more sustainable", says Hamid.
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