london, 20 January 2012

Global commodity exchange traded product (ETP) assets rose by US$8bn to total US$171bn during 2011 in what were challenging market conditions for commodity ETP assets. Escalating concerns over European sovereign risk, subdued global economic growth and rising investor risk aversion dominated the investment environment which saw investors move into defensive assets at the expense of cyclical and commodity assets: Source ETF Securities.

However, gold bucked the declining trend, with a higher gold price and strong investor demand pushing gold ETP assets to an all-time high, more than offsetting price declines and outflows from most other commodity ETPs in 2011.

Key findings from ETF Securities' Global Commodity ETP Quarterly for 2011 include:

Global commodity ETP assets amount to US$171bn in 2011 - Global commodity exchange traded product (ETP)1 assets rose to US$171bn by the end of 2011.  Numerous factors accounted for the strong performance of gold ETP assets over the year, such as the general investor trend of seeking out investments with defensive features in the prevailing uncertain financial and economic environment, fears of currency debasement, rising sovereign risk and diversification of emerging market reserves away from Euros and US dollars, and low real interest rates.

Gold ETPs dominate commodity ETP flows, with a rise in assets of over US$20bn - Gold continued to dominate commodity ETP assets and flows in 2011. By the end of the year, total assets in global gold ETPs stood at an all-time record of US$123bn, up 19% over end-2010 levels and making up 72% of total outstanding commodity ETP assets of US$171bn at the end of 2011. Of the US$20bn increase in global gold ETP assets, US$ 9.6bn of the rise was due to net new investor flows and the rest by an over 10% rise in the gold price.

Non-precious metal commodity ETP assets decline in tandem with global growth - ETP flows excluding precious metals very closely followed the declining global growth trend, so that by the end of 2011, total outflows amounted to US$8.3bn. Energy ETPs witnessed the largest selling in 2011, with outflows of US$8.0bn. The flows were dominated by natural gas and oil, with each seeing US$4.7bn and US$3.3bn of outflows, respectively. Most of the outflows from natural gas ETPs took place in the first half of the year when the US benchmark Henry Hub natural gas spot price rose to the US$4.0-4.5/MMBtu range. However, as the price dropped rapidly through in the last quarter of 2011, investors started to build positions again, with nearly US$400mn of inflows registered. In terms of agriculture ETP flows, the individual agriculture commodity with the largest inflows last year was wheat with US$178mn of inflows, followed by grains with US$46mn and cotton with US$29mn of inflows. Most other agriculture ETPs were generally flat or saw modest outflows.

Commenting, Nicholas Brooks, Head of Research and Investment Strategy, said: "It has been a difficult year for commodity ETPs, as slowing global growth and rising risk aversion caused investors to reduce allocations to cyclical assets and move into cash and G3 bonds. The downtrend was offset by the strong performance of gold which benefited from the general risk aversion.

"As we enter 2012, a myriad of risks remain, although recent signs of improvement in the US economy and an uptick in the global manufacturing cycle have started the year on a positive note, with ETP inflows broadening out and most commodity prices rising. Europe's ability to deal with its sovereign debt crisis, the durability of the recent rebound of the US economy and China's ability to engineer a soft landing will likely remain the main factors driving the performance of commodity ETPs this year."

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