By Myra P. Saefong, MarketWatch
SAN FRANCISCO (MarketWatch) — After an epic selloff in commodities this week, it’s hardly astounding that investors pulled money out of commodity-sector funds in droves. But what is surprising is that those fund outflows occurred before the worst of the crash.
During the week ended May 4, commodity- and energy-sector funds posted big outflows, putting an end to weeks of healthy commodity-sector-fund inflows as traders fretted over the potential for a slowdown in U.S. economic growth, according to a report from EPFR Global Friday.
“Investors had booked some serious profits in commodities that were long overdue,” said Brad Durham, managing director at EPFR Global, in emailed comments. “The parabolic gains in some commodities were clearly overextended. We’ll see if they recover and continue their onward march.”
The commodity-sector-fund flow data cover a period before Friday’s better-than-expected U.S. jobs data appeared to improve investor sentiment, and also before Thursday’s selloff in energy and precious-metals futures. Commodities, however, had already been suffering from steep declines that began at the start of the week.
On Thursday, crude-oil futures (NEW:CLM11) sank nearly 9%, while gold (COMMODITIES:GCM11) dropped more than 2% and silver (COMMODITIES:SIN11) slumped 8%.
Commodities continue downtrend
Paul Vigna reports on the latest in the week’s commodity-market selloff.
“The robust inflows enjoyed by commodity-sector funds in recent weeks came to an abrupt halt in early May as investors scrambled to book recent gains before they evaporated,” the EPFR report said.
“Redemptions, spearheaded by institutional investors, hit their highest weekly total on record,” it said. Weekly data go back to the fourth quarter of 2000, according to EPFR, which provides fund-flow and asset-allocation data to financial institutions.
Investors pulled $1.47 billion out of the commodity-sector funds EPFR tracked during the week ending May 4. That’s in sharp contrast to a week earlier, when investors deposited a net $961 million.
At the center of the action were funds focusing on gold and precious metals, the report said, with “concerns that prices have climbed too far given added weight by weaker macroeconomic data.”
Energy-sector funds also took a hit from concerns of slowing demand, with more than $1 billion pulled out from those funds during the week ending May 4.
‘Profit taking’
“The outflow is significant, but getting less unusual given the growing role of [exchange-traded funds] that allow investors to hop in and out a lot quicker than they used to,” Cameron Brandt, director of research at EPFR Global, said in emailed comments.
‘The outflow is significant, but getting less unusual given the growing role of ETFs
that allow investors to hop in and out a lot quicker than they used to.’ Cameron Brandt, EPFR Global”
“It may well mean profit taking, since most of the activity centered around funds — gold and precious metals — that have limited linkage to industry,” he said.
Kevin Kerr, editor of Kerr Commodities Watch, said the fund outflows shouldn’t shock anyone.
“The funds were heavily into the metals and with these markets going parabolic once the exchange raised the margins on silver so dramatically, it was like opening a dam that needed to let off some pressure — and boy did it ever,” he said.
“Funds will begin buying again at cheaper levels and the pattern will repeat,” Kerr said.
Meanwhile, overall flows into all equity funds and all bond funds remained positive during the week ended May 4, the EPFR report said, with equity funds absorbing $4.7 billion, including the $1.2 billion moved into emerging-markets equity funds, while bond funds took in $4 billion.
“Behind those numbers was a shift that favored defensive sectors, some diversified fund groups and [exchange-traded funds] over actively managed funds,” Brandt said in the report.
The inflows to emerging-markets stock funds marked a sixth straight weekly climb, but the figure was below the inflow of $1.8 billion reported for the week that ended April 27, data showed.
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