ETF Buyers Pile Into Commodities Over ‘Euphoria’ on China Demand

  • Investors poured about $3 billion into commodity-linked ETFs
  • Money managers bullish on 16 ot 18 commodities, CFTC data show

Commodities are in the longest rally in almost three years, and investors in exchange-traded funds are taking note.

Through Friday, almost $3 billion poured into long-only commodity-linked ETFs in February, on course for the biggest monthly inflow since July, according to data compiled by Bloomberg Intelligence. While that’s mainly driven by the $2.6 billion added to precious metals, funds in energy, agriculture and industrial metals have also posted inflows, BI data show. Money managers are bullish on 16 of 18 commodities, according to U.S. government data.

Hedge funds and retail investors are encouraged by signs of stabilization in China, the biggest consumer of everything from industrial metals to soybeans, and speculation that U.S. President Donald Trump’s policies including his pledge to cut taxes will bolster U.S. growth. That’s helping revitalize demand at a time when raw materials such as copper to nickel are facing supply disruptions.

“Extreme euphoria” over the outlook for Chinese demand is helping boost commodity ETFs, said Chad Morganlander, a money manager at Stifel, Nicolaus & Co. in Florham Park, New Jersey, where he helps oversee more than $200 billion. “These investors are looking for quick access, with increased liquidity to participate. It’s a snowball effect.”

The Bloomberg Commodity Index has gained about 1.3 percent this year, extending last year’s annual advance that was the first since 2010. The gauge of 22 raw materials is headed for its fourth straight monthly increase in the longest rally since April 2014. Zinc and copper are among among the best performers in 2017, each climbing more than 11 percent amid signs of tightening supply. ETFs linked to industrial metals are set for a fifth straight monthly inflow, a trend not seen since 2012, BI data show.

Commodity-linked ETFs and passive index funds attracted $2.4 billion in the first week of February, taking this year’s inflows to $9.8 billion, Citigroup Inc. said in a report Feb. 13.

Banks from Citigroup to Goldman Sachs Group Inc. have expressed confidence in the global rebound in commodities. Goldman’s head of commodities research Jeff Currie reiterated the bank’s “overweight” recommendation on raw materials in January, saying a “cyclical uptick” in global economic activity is driving demand. In December, Citigroup said in most raw materials will perform strongly in 2017.

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