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U.S.-based commodities funds posted the largest withdrawals of 2017, bleeding $1.2 billion during the latest week and sending a contrarian signal to rising oil and gold markets, Investment Company Institute (ICI) data showed. Crude oil futures and gold have both generated more than 4 percent returns apiece over the last month, but withdrawals accelerated for U.S. funds heavily invested in those assets.
Kristina Hooper, global market strategist at Invesco Ltd, said the selling could reflect concerns that “with oil in particular there might not be control over production.” As part of a deal with Russia and other non-members, the Organization of the Petroleum Exporting Countries is reducing output by about 1.2 million barrels a day from Jan. 1, 2017 until March next year. Officials are meeting in Abu Dhabi starting on Monday to discuss compliance.
Recent gains aside, oil has struggled to regain its peaks from before a vicious sell-off in 2014. “Oil has been such a wild card,” said Hooper. Gold prices, meanwhile, are gaining. A declining dollar helps gold by making it cheaper to foreign buyers and by reducing spending power and increasing inflationary pressures within the United States.
Gold is often seen as a hedge against inflation. Low bond yields also support gold, which competes with bonds for investor demand and pays no yield. “It’s a supportive environment, going forward, for gold, but we’ve seen some profit-taking,” said Maxwell Gold, a director of investment strategy at ETF Securities Ltd. He said physically backed gold ETFs sold 68 metric tons of the metal in July.
Domestic stock funds in the United States netted cash for the first time in six weeks, attracting $1.1 billion during the week as company earnings supported further price gains this year. Apple Inc on Tuesday delivered strong fiscal third-quarter earnings, the latest in a string of well-received results. International stock funds and taxable bond funds, which have been popular this year with U.S. investors, added a 34th straight week of inflows. But in both instances the trend slowed.
World equity fund flows weakened to $3.9 billion from $7.5 billion the week prior. Taxable bond fund flows declined to $5.6 billion from $12.8 billion the week before.
The following table shows estimated ICI flows for mutual funds and exchange-traded funds (all figures in millions of dollars):
via WMN