June 5, 2020

Investors Flock to Precious Metals Commodities Funds

by Pat Keon, CFA.

Funds in Refinitiv Lipper’s Commodities Precious Metals Funds classification took in $1.5 billion of net new money for the fund-flows week ended Wednesday, June 3. This was the peer group’s eleventh straight weekly net inflows, during which time it has experienced net positive flows of $17.4 billion. The magnitude of this streak is put into perspective when comparing it to the group’s previous largest annual net inflows, which occurred last year and was $10.3 billion. Funds in this peer group invest in either the actual physical commodity or commodity-linked derivatives—they don’t invest in common stocks. This data represents only ETFs since there are not any mutual funds which utilize this strategy.

As with most everything we’ve seen in the markets and fund flows results over the past several months, investor appetite for this classification of funds has been driven by COVID-19. Commodities such as gold and silver (which comprise the lion’s share of the precious metals peer group) have very low (or even negative) correlations with stocks and bonds. Due to this, commodities are used as a hedge against risk and are a safe haven investment during times of economic duress. While we’ve seen fund flows for money market funds (another safe haven) normalize somewhat (three straight weekly net outflows after a run of record-setting net inflows), the demand for commodities precious metals funds has not slowed down.

The overall net inflows for the peer group have been dominated by its three largest ETFs, two of which are gold products, while the other invests in silver. The largest individual net inflow belongs to SPDR Gold (GLD) at plus $13.1 billion, while iShares Gold Trust (IAU) checked in with an increase of $4.5 billion. Lastly, iShares Silver Trust (SLV) has year-to-date net positive flows of $1.8 billion.

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