Industry Updates

Commodity ETFs see inflows as Federal Reserve shifts inflation targets

$500m inflows in the week to 28 August

Tom Eckett

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Investors looked to take advantage of the Federal Reserve’s shift in inflation targets last month by gaining exposure to two commodity ETFs.

According to data from Ultumus, the $1.9bn iShares Diversified Commodity Swap UCITS ETF (ICOM) and $1.7bn the Invesco Bloomberg Commodity UCITS ETF (CMOD) saw a combined $500m inflows in the week to 28 August, the second and third highest inflows across all European-listed ETFs.

The inflows come just a week after the Fed announced changes to its inflation target, most notably the decision to allow inflation to run above 2%.

Previously, the Fed – like other central banks in developed markets – had an inflation rate target of 2%.

This change has been introduced to prevent the US central bank from impacting an economic recovery by addressing shortfalls in employment.

Jerome Powell, chairman of the Fed, commented: “This change reflects our appreciation for the benefits of a strong labour market, particularly in low and moderate-income communities.”

The move is predicted to benefit commodities which tend to perform better in inflationary environments.

Jim Wiederhold, associate director, commodities and real assets, at S&P Dow Jones Indices (SPDJI), said the change in inflation target also gives the Fed more leeway to cut rates in the event of an economic shock.

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Commodities posted strong performance in August with the S&P GSCI Energy index rising 5.4% driven by a hurricane in the Gulf of Mexico causing oil rig shutdowns and short-term supply disruptions and lessening needs for energy due to the hot weather.

“Energy commodities benefitted from a catch up in demand and signs of a slight return to normal in economic activity, after the dire situation the US experienced in Q2 this year,” Wiederhold added.

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