Invesco `Pounding the Table' No More as Commodity ETFs Surge
(Bloomberg) -- Two years ago, Invesco Ltd. had trouble persuading clients they should add resurgent commodities to their portfolios. Now, the specter of inflation is making it easy.
Invesco’s Source Bloomberg Commodity UCITS ETF has attracted more than half a billion dollars this year, the fourth-biggest inflow of commodities-linked exchange-traded funds tracked by Bloomberg. Assets in the fund have almost doubled since it was listed over a year ago. Invesco’s other similar ETFs are also attracting money, including PowerShares DB Commodity Index Tracking Fund.
“I was pounding the table two years ago, saying that the cycle is bottoming and this is a great entry point, and it was so hard to get people to buy when prices were low,” said Jason Bloom, a global market strategist at Invesco, which oversees $934 billion in assets including Source and PowerShares ETFs. “The reason people are buying commodities now is for an inflation hedge in their portfolio.”
While raw materials are barely up this year, ETF investors are flocking to the asset class as they seek to protect their wealth against rising prices. The 10-year inflation break-even rate, climbed this week to the highest since 2014. Interest is also rising for industrial metals and energy, after some assets moved into so-called backwardation -- when near-term contracts are more expensive than those at a later date -- signaling an end to oversupply, Bloom said.
The less expensive long-dated contracts also encourage investors to hold on to their position because they can roll into cheaper contracts further along the curve, giving them a positive return, even if prices remain flat. In the case of crude oil in New York, the near-term contract is 9.1 percent more expensive than the one for delivery one year from now, while in natural gas, it’s 7.2 percent according to Bloomberg Intelligence data.
“The roll yields are so high now that we’re in steep backwardation,” Bloom said. “You can make 8 or 9 percent on energy, even if the price goes sideways.”
Assets at PowerShares DB Commodity Index Tracking Fund, the largest broad-based commodity ETF tracked by Bloomberg, climbed about 37 percent to $2.9 billion over the past two years as investors piled in.
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