London, 18 March 2011

Investors plowed more than $4 billion into commodity-based products and mutual funds in February, the most in nine months, favoring agricultural markets, silver and broad index funds, Lipper data showed on Thursday.

Inflows to U.S.-regulated "commodity products" rebounded to $4.05 billion last month, up from just $38 million in January, according to data tracking funds that invest directly physical commodities or derivatives, not corporate securities. It's the highest since 6.3 billion in May of 2010.

The surge helped elevate total net assets in the funds to $151.4 billion, up from $142.4 billion at the end of January. That makes up about half of the total net length of index funds tracking commodity markets, which includes swaps and other unregulated vehicles, according to CFTC data.

The steadily rising flow of investor capital into the commodity markets -- aided in large part by the advent of mutual and exchange-traded funds that allow institutions to avoid the complex futures markets and invest as they would into stocks or bonds -- has fueled intense debate about whether speculators artificially inflate prices.

While numerous studies have sought to disprove any causal link, most analysts agree that multibillion-dollar sized allocation shifts into the relatively smaller, less-liquid commodity markets can have a short-term impact on prices.

MARKETS BOUNCED

Inflows climbed as markets recovered from an early January slump to post a 3.3 percent return for the Reuters-Jefferies CRB index, with oil prices igniting on turmoil in North Africa and the Middle East, corn scaling new post-2008 peaks on concerns over low stocks and sugar touching a 30-year high.

The PowerShares DB Agriculture Fund, which invests in grains, softs and livestock markets tracking the DJ-UBS Agriculture Index, attracted the greatest in-flows of $522 million, taking net assets to $3.7 billion. The underlying index rose by 0.9 percent in February.

Investors continued to shift their gold holdings into the iShares Gold Trust , which saw a net inflow of nearly $350 million, and out of the SPDR Gold Shares, which remains the biggest fund with nearly $55 billion. Experts have said the iShares vehicle's lower fees is attracting interest. The iShares silver trust attracted $315 million as prices outpaced gold.

While Brent crude oil prices posted their best monthly gain since May 2009 as Libyan oil exports were halted by violence, U.S. crude oil prices lagged behind due to the glut of landlocked oil. The U.S. Oil Fund witnessed a net outflow in February, mostly reversing inflows in January.

The biggest commodity mutual fund operator, PIMCO, continued to attract sizable investment, with the CommoditiesPLUS Strategy Fund for institutional investors drawing in $326 million, while the biggest RealReturn fund attracted $276 million to rise to $18.3 billion.

The PLUS fund is benchmarked against the Credit Suisse Commodity Benchmark, while the RealReturn fund uses the Dow Jones-UBS Commodity Index Total Return index.

The data does not include fund holdings of over-the-counter indices or direct investment in futures or physical commodities, or hedge funds. Lipper's historical data includes only funds that are currently in operation.

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