NEW YORK — Investors are bailing out of commodity funds at the fastest pace on record, and the exodus shows no signs of ending.
US exchange-traded funds linked to broad baskets of raw materials saw a net outflow of $1.23bn over the first three months of the year, the most of any quarter since the securities were created in 2006, data compiled by Bloomberg show. Bank of America says ample supplies have unleashed price wars, and Goldman Sachs predicts a 20% drop for commodities already near a 13-year low.
Morgan Stanley and Société Générale also have cut forecasts for a whole range of items.
Rising supplies created bear markets over the past year as drillers unlocked more oil and natural gas, copper mines expanded and farmers harvested record maize and soya bean crops. The strongest dollar in at least a decade encouraged countries with weaker currencies to export more.
While the US economy is strengthening, Europe is still contending with its debt crisis and growth is slowing in China, the top user of everything from iron ore to pork.
"This is not the best time to be making wagers on commodities," said Wells Fargo Investment Institute global strategist Sameer Samana, last week.
"Base metals and farm commodities are very sensitive to global growth, and most of these markets are oversupplied. China and the emerging markets have been pretty weak and are not growing fast enough to create demand."
The Bloomberg Commodity Index of 22 raw materials is down 5% since the end of December, after slumping on March 18 to the lowest since June 2002. Oil, which averaged almost $96 a barrel in the three years through 2013, touched a six-year low of $42.03 on March 18.
The commodity index is heading for a fifth straight annual drop, the longest slide since the data began in 1991.
"Commodities had a super cycle from 2002 to 2008, and now it appears to be reversing," said BMO’s Jack Ablin in Chicago last week. "The supply side has probably outpaced true demand.
Bloomberg
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