PORTFOLIO Funds Sicav Etf

Bargain-hunting continues among ETP investors

Silver prices are attractive relative to gold, both have seen inflows of US$130m

Crude oil ETPs saw US$128mn inflows representing 7% of crude assets under management, as investors see buying opportunities in recent price weakness. US crude inventories sharply declined (5.2mn barrels) last week, resulting in a 3% rebound of oil prices. Although inventory has been declining for five consecutive weeks, expanding US production led to withdrawals being low by seasonal standards up until last week. Despite the OPEC representatives’ comments about an extension of the production cuts to beyond the end of the year, the oil cartel revised upwards its estimates of the growth in non-OPEC supply from 400k to 950k barrels per day. As a result, market impact of the OPEC’s strategy remains subdued.

Strong inflows into gold and silver, totalling US$130mn despite sharp price declines. The very low volatility in equity markets suggests high risk appetite among investors, driving the gold price down by 0.4% last week, close to our year-end 2017 fair value of US$1230. While around 80% of silver’s price is explained by its correlation to gold, supply deficits, growing industrial demand and a tightening in exchange inventory provide upside potential for silver. Silver prices are relatively attractive compared to gold. We estimate silver’s fair value to be around US$20/oz by year end, presenting a potential upside of 20% from current price of US$16.4/oz.

US$18.2mn outflow from all commodity ETPs and US$25.7mn of outflows from industrial metal ETPs. We believe some investors are reducing their long exposure to broad commodity baskets in order to play more opportunistic trades such as crude oil and silver. However, industrial metals saw outflows of US$25.7mn in the past week as industrial metals dropped 2.4% month-to-date. Market participants expect a slight slowdown in Chinese economic activity in May which has also been weighing on metal prices. The slight disappointment from Chinese retail sales (10.7% vs. cons:10.8%yoy, prev:10.9%) and industrial production (6.5% vs cons:7.0%yoy, prev:7.6%) prints in April may continue to weigh on industrial metals’ prices.

Despite the trade weighted USD remaining weak we have seen inflows of US$35m of inflows in to USD long positions and outflows in short positions of US$19m over the last 3 weeks highlighting a potential contrarian position building, most of the positioning has been against the EUR.

US$9mn of inflows into robotic and cyber thematic ETPs. Robotic ETPs saw US$5.2mn of inflows last week and cyber security ETPs also saw inflows of US$2.8mn last week. Year-to-date, cyber and robotic thematic ETPs attracted US$300mn of inflows reflecting the growing appetite from long-term investors.

Morgane Delledonne - Associate Director, Fixed Income Strategist - ETF Securities