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.
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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