Commodity outflows spike amid macro uncertainty

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Commodity investments have fallen in consecutive quarters for the first time since 2008, suggesting that investors are expecting the worst.

Amid concerns for global growth and volatile financial markets, total assets under management fell to $393 billion (c£246.4 billion) at the end of the third quarter, from $408 billion at the end of the second quarter, according to Barclays Capital.

Indeed, the quarter marked record volatility for the sector, with $9 billion inflows in July - the highest since December 2010 - followed by the largest-ever monthly outflow of $10 billion in September.

The investment outflow last month was double the total net outflow across the third quarter of 2008 in the run-up to the financial crisis, the bank added.

And volatility was seen across the investment board, particularly index swaps which went from a $3 billion inflow in July to a $9.5 billion outflow in September.

"All in all, the recent outflow along with recent aggressive selling of commodities by hedge funds suggests commodity investors are expecting the worst," said analyst Roxana Mohammadian-Molina.

Metal markets bore the brunt of the selling during the three-month period and are among the biggest price losers in the past month.

Barclays cites the worsening European debt situation in September as weighing heavily on sentiment, prompting the largest decline in the S&PGSCI and the DJ-UBS since May 2010 and October 2008 respectively.

"One of the key differences so far this year with 2008 is the much smaller investor appetite for precious metals as a financial hedge," Mohammadian-Molina added.

Although the third quarter saw precious metals ETPs rake in $5.4 billion, nearly all of these inflows occurred in July, with both August and September witnessing almost none despite the level of macroeconomic concern.

Back in 2008, flows into ETPs increased as the crisis deepened.

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