Commodity Fund Inflows Surge to $4 Billion in February: Lipper

By Reuters
Monday, March 21, 2011 3:50:05 PM ET

NEW YORK (Reuters)—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.

Inflows to U.S.-regulated "commodity products" rebounded to $4.05 billion last month, from just $38 million in January, according to data tracking funds that invest directly in physical commodities or derivatives, not corporate securities. It was the highest since $6.3 billion in May 2010 and the third-largest one-month inflow on record.

The surge helped elevate total net assets in the funds to $151.4 billion, from $142.4 billion at the end of January. That makes up about half the total net length of index funds tracking commodity markets, including swaps and other unregulated vehicles, according to data from the U.S. Commodity Futures Trading Commission.

To view a graphic on the data, click here: http://r.reuters.com/sux58r.
To see the CFTC data click here: http://r.reuters.com/hym38r.

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. But as markets faltered in March amid escalating uncertainty and instability, the flow may not last. The CRB is down 0.8 percent so far, its first decline in seven months.

"We expect outflows in March given the heightened volatility," said Edward Meir, senior commodities analyst at global futures brokerage MF Global.

The rising flow of investor capital into commodities—aided 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 multi-billion-dollar allocation shifts into the relatively smaller, less-liquid commodity markets can have a short-term impact on prices.

Markets Bounced

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

The iShares silver trust attracted $315 million as prices outpaced gold.

While Brent crude oil posted its best monthly gain since May 2009 as Libyan oil exports were halted by violence, U.S. crude prices lagged due to a 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. 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.