Commodity exchange-traded funds have become increasingly popular and achieved a relatively high level of market awareness, according to a new report on commodity ETF liquidity trends in Eu
Commodity exchange-traded funds have become increasingly popular and achieved a relatively high level of market awareness, according to a new report on commodity ETF liquidity trends in Europe and the US issued by Deutsche Bank.
According to authors Nizam Hamid and Yvonne Sandford, this is due to a combination of the extraordinary recent returns in different areas of the commodity marketplace and the ease of access offered by listed products such as ETFs, notes and exchange-traded certificates. In addition, they say, recent product innovation in the commodity area has persuaded a wider range of investors to consider adding this as an asset class to broad portfolio strategies.
Product issuance in both Europe and the US in the commodity area initially focused on precious metals such as gold, followed by oil and then broad commodity indices. While single asset ETFs and products remain the core areas for asset growth and turnover, the report says, there has been a general trend toward diversified and relative broad indices.
In addition, investors have been keen to gain exposure to indices that can effectively manage the vagaries of the returns and structural issues that can arise from trading the underlying assets or futures on the underlying commodities. This has led to a series of enhanced total return and optimal yield related indices that offer both transparency and ease of use.
According to Deutsche, commodity ETF assets in Europe are currently at an all-time high at close to EUR9bn, representing significant growth from around EUR1bn in early 2006. Buy comparison, European equity ETFs have assets of EUR79bn and fixed-income ETFs EUR21.2bn.
In the US asset growth has also been dramatic, the report says. Commodity-related listed products have close to EUR24bn in assets under management, although this is smaller on a relative basis in a market where equity ETFs have assets of EUR351bn. Turnover in US commodity-related ETFs and exchange-traded notes is currently around EUR1.6bn, compared on-exchange turnover in Europe of just EUR112m.