ETF Securities writes that equity ETFs dominated flows last week

James Butterfill, Head of Research & Investment Strategy at ETF Securities, writes in the weekly flows report that equity ETFs saw the highest inflows last week with USD42 million.

Butterfill says: “The recent weakness in the gold price has prompted investors to reassess gold miners which has seen inflows of USD68 million over the last two weeks. Historically gold miners have a high beta of 2x relative to the gold price but in recent months they have underperformed and investors have been taking advantage of this disparity. We see an improved outlook for gold miners, while they currently trade at 46x price/earnings, in line with the long term average, EBITDA has tripled over the last year as the gold price has recovered, highlighting that despite aggressive capital expenditure cuts their profitability is improving.”

Butterfill also reports that other thematics remain popular such as robotics and cyber security which saw inflows of USD9 million and USD12 million last week respectively, having had consistent inflows on a weekly basis since the beginning of the year.

“Precious metals saw a modest inflow of USD5 million after the outflows following the US Federal Reserve’s interest rate hike mid-June. Despite the threat of interest rate hikes this year investors continue to favour precious metals with year to date inflows of USD609 million.

“We believe this is due to investors continued concern for geopolitics and the consequences of unwinding record loose monetary policy. We see a close correlation to politically turbulent events in the US and inflows into Gold ETPs. Our gold fair value for the year end remains at USD1230 per ounce, assuming that no major geopolitical events surface this year.
“Price strength in palladium this year has prompted investors to take profits since the beginning of the year although we saw no activity last week and a slowing over the last month. We believe there has been tight liquidity due to increased demand from Hong Kong for the metal, suggesting that China maybe stockpiling the metal.”

Crude oil inflows continued this week with inflows representing 9 per cent of assets under management over the last month, Butterfill reports. “We have witnessed a trading mentality amongst investors who typically buy on price weakness, this weeks’ fall of 4 per cent was a continuation of the ‘buy on weakness’ trend.

“Cocoa inflows last week totalled a significant USD9 million while inflows in coffee totalled USD7 million for the week. It seems that investors continue to buy those soft commodities with the poorest performance: both cocoa and coffee were down 10 per cent and 7.5 per cent as of Thursday’s close respectively versus -4.2 per cent for the broader basket of soft commodities before posting a modest rebound.”

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Beverly Chandler
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