Strong January Returns by Lipper Commodities Funds Help Attract $3.7 Billion to Start 2022

Commodity funds provide numerous benefits when implemented into investors’ portfolios. Three of the main benefits are portfolio diversification, inflation protection, and the return potential of the underlying commodity. This asset class tends to garner more attention as market uncertainty grows. With the International Monetary Fund (IMF) revising downward both global (-0.5 percentage points) and U.S. (-1.2 percentage points) 2022 growth projections from their October projections, it feels like a good time to touch upon commodity funds.

Lipper has six classifications that make up the commodities macro-group of funds—Commodities Agriculture Funds, Commodities Base Metals Funds, Commodities Energy Funds, Commodities General Funds, Commodities Precious Metals Funds, and Commodities Specialty Funds. Even a small allocation to funds within these Lipper classifications would have proven beneficial as the S&P 500 realized its worst monthly performance in January since the start of the pandemic. The commodities macro-group returned a positive 6.32% over the month of January and was the only equity macro-group to log plus-side performance.

The Bureau of Economic Analysis (BEA) published its December Personal Income and Outlays Report on January 28. In this report, we can find arguably the most important inflation measure monitored by the Federal Reserve—the core personal consumption expenditures price index (core PCE). Core PCE provides a measure of prices paid on a changing basket of domestic goods and services, excluding food and energy. The quarter-over-quarter gain (+4.9%) was the largest gain since 1983. For reference, the Fed’s target is 2%. Just this past Wednesday the Federal Open Market Committee (FOMC) released the following statement:

“With inflation well above 2% and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate. The Committee decided to continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March.”

While the statement may not have shocked the market, it does highlight the Fed’s concrete commitment to fight both the current and oncoming price instability. So, what have the flows looked like for the Lipper commodity classifications?

Looking back to 2020, the commodity macro-group of the six Lipper classifications saw steady weekly inflows at the start of the pandemic. Throughout 2020 M2 money supply grew astronomically, and investors rushed into these funds that primarily invest in commodity-linked derivatives or physicals. In 2020, $36.8 billion flooded into these funds.

Last year, however, was not so friendly for the macro-group as the six Lipper classifications witnessed a total of $9.0 billion in outflows. Lipper Commodities Precious Metals Funds saw the largest total outflows under the macro-group throughout the calendar year (-$11.4 billion).

The tides may be turning, so far year to date the macro-group has attracted $3.7 billion and has only logged one weekly net outflow.

A huge detractor from the macro-group, however, has been the Lipper Commodities Energy Funds classification which has suffered 45 weekly outflows in the last 57 weeks dating back to the start of 2021.