Investors retreat from commodities ETFs as sell-off continues

Investors are pulling money out of commodities exchange traded funds (ETFs) at the fastest pace on record, as the wider market slump continues.

According to data compiled by Bloomberg, US exchange-traded funds linked to broad baskets of raw materials saw a net outflow of $1.23bn over the first three months of 2015.

The figure represents the highest outflow on record for any quarter since the securities were created back in 2006. It comes as the wider commodities market remains bearish on the back of tepid demand from China, the relative strength of the dollar and concerns over global growth.

For instance iron ore is down to six-year lows, while the price of oil, using Brent as a global proxy benchmark, is down by over 50% since July 2014. Precious metals have also endured a rocky few months alternating between dips and rallies.

Gold prices slid on Monday as investors continued to be concerned about the strengthening dollar. Gold for June delivery dropped 1.3% to $1,185.30 an ounce.

IG analyst Chris Beauchamp said: “We can safely say that the rally in precious metals has run its course for the time being, as economic gravity reasserts itself and the US dollar finds fresh buyers. The pattern of lower highs is seen once again, as gold and silver both move into reverse gear.”

Bloomberg said its Commodity Index of 22 raw materials was down 5% since the end of December. The data and information provider added that its index was heading for a fifth straight annual drop; the longest slide since the data series began in 1991.

Overall, there is no escaping the fact that commodities have maintained their status as the world’s worst performing asset class as the first quarter of 2015 comes to a close, said Grant Sporre, research analyst at Deutsche Bank.

“Of the risk factor strategies, we believe short volatility will be the best performer over the coming year. We also believe the volume risk premium remains richest in the energy sector. Furthermore, supply discipline continues to be absent across the bulk commodities sector,” he added.