Global assets rose by $5.2bn in the first quarter of 2011, the biggest quarterly increase on record. Diversified broad commodity ETFs represented 51 per cent of growth in total commodity ETP assets during the period.
These products track the futures returns of a range of agriculture, energy, precious metal and industrial metal commodities. ETF Securities said an increasing number of investors are using these products as their primary method of accessing commodities.
Performance of fund over 1-yr
Source: Financial Express Analytics
Nicholas Brooks, head of research and investment strategy at ETF Securities, says the impact of rising food prices has been one of the biggest drivers of popularity in these products in the short term.
"A number of investors are using commodity ETPs as a direct way to hedge their portfolios against sharply rising food and energy price inflation," he said.
"With the inventories of most agricultural commodities near historically low levels and weather events hitting supply in key producing countries, agriculture prices have been on a strong uptrend since last year."
"More recently, political and social upheaval in North Africa and the Middle East has driven oil prices higher. Investors appear to be using commodity ETPs as a way to hedge against further price increases."
"In the longer term, strong demand for diversified exposure to commodities appears to have been driven by investor demand not just for portfolio diversification, but also for plays on emerging market growth."
"Investors want exposure, but don’t want to take on the political and equity-specific risks that come with investing in emerging markets equities."