A Wave of Buying Hits Commodity Funds
By CAROLYN CUI
In recent weeks, commodity funds have seen an influx of several billion
dollars, a stark reversal from the brutal forced selling that dominated
the second half of last year.
Most of the money has flowed into long-only vehicles -- funds that bet on
prices to rise -- suggesting a combination of investors' revived
confidence
and portfolio rebalancing. This wave of fresh buying is partly behind the
rally in some commodities that petered out a few days ago, and could
bring more liquidity into the market. (Please see related article on C8.)
"One thing that has changed significantly in recent weeks is the attitude
of investors to commodity exposure," Barclays Capital said in a research
note on Thursday.
In December, investors poured $3.9 billion into commodity exchange-traded
securities, or ETFs and ETNs, which held a total of $36.2 billion in
assets as of the end of 2008, according to fund data tracker National Stock
Exchange.
Among commodities, oil and gold funds are among those seeing the most
interest. Last month, the United States Oil Fund, the largest oil ETF,
gained $2.06 billion in net assets, and $603 million went into SPDR Gold
Shares, the largest gold ETF backed with the physical metal, over the
same period, according to National Stock Exchange. A silver ETF, iShares
Silver Trust, had a net inflow of $37 million.
PIMCO Commodity Real Return Strategy fund, the largest commodity index fund
with $6.2 billion in assets, says it has seen a consistent cash inflow
every business day through Thursday since Dec. 15. The fund had been losing
assets since last summer. Meanwhile, some hedge funds that survived last
summer's carnage are looking to open new funds.
For the PIMCO fund, a popular vehicle used by many pension funds and
endowments, about 25% to 30% of the latest buying was due to year-end
asset allocation rebalancing, estimates Mihir Worah, the fund's portfolio
manager.
The rest came from "new investors who think the selloff was overdone," he
says. Another big index fund, the $892 million Oppenheimer Commodity
Strategy Total Return Fund, also showed a gain of assets last month,
according to Morningstar Inc., a provider of fund data.
Commodities' crash in the second half of last year shocked some new
participants and proved a huge disappointment for those counting on the
sector's diversification value. But many commodities were brought back to
levels not seen in years, possibly creating opportunity for investors
seeking long-term exposure to prices of raw materials. Colorado's Public
Employees' Retirement Association, a pension fund that
oversees about $30 billion in assets, got board approval in June, as prices
peaked, to invest up to 3% of its portfolio. The fund is currently
considering the timing of an investment and is screening external managers.
"We believe the original rationale for commodity investing is intact," said
Jennifer Paquette, the fund's chief investment officer in an email.
"Recent pricing moves make our entry more interesting." The California
Public Employees' Retirement System, the largest pension in the U.S., said
last
month that it is looking at other potential opportunities to enhance
returns of its long-only commodities portfolio. The $183.9 billion fund
said it had about $1.3 billion invested in indexed commodities swaps in
mid-October.
Some hedge funds are wading deeper into commodities. These managers could
be betting both long and short in the market. The N.I.R. Group, a New
York-based hedge fund which manages $7 billion in assets, just opened an
internal commodity fund up 27% last year to outside investors.
Galena Asset Management, a subsidiary of Dutch commodity trading firm
Trafigura Group that manages about $600 million, is planning to add an
energy fund to its suite of funds, the firm says.
In other markets: OIL: The next OPEC meeting, scheduled for March, will
discuss a new output production cut as an option and may be brought forward
if prices keep
falling, Iran's governor to the producer group said Sunday. His comments
come as oil prices continue to slide despite mounting evidence OPEC
members have been at least in part fulfilling the pledges to reduce output
they made at their last meeting in mid-December.
Muhammad Ali Khatibi said: "If the downward trend continues, I would not be
surprised if there is an emergency meeting before March. It will be
necessary." -Gregory Meyer and Benoit Faucon contributed to this article.
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