ETP volatility as market uncertainty continues

Investors have been returning to exchange-traded products, backed by physical commodities, as geopolitical and economic turbulence unsettles the market, the associate director, research, at ETF Securities has said.

Nitesh Shah said over the past few months, investors have been building ‘long positions’ in physical commodities, such as silver ETFs, long copper ETFs and aluminium as a hedge against equity market fluctuations.

He said: “With the situation in Ukraine showing few signs of stabilising and economic data from China coming in softer than expected, gold and silver prices rose.

“Both metals lived up to their reputation as portfolio diversifiers and insurance assets.”

Mr Shah said that, in particular, investors were tilting their portfolios in favour of silver, partly because the gold price moves may be more volatile.

According to data from ETF Securities, physical-backed silver ETFs saw $38m (£22.8m) worth of inflows over the second week of March, following from a strong inflow of $132m (£79.2m) at the end of January, when the situation in Ukraine started to escalate.

Adviser view

Gordon Bowden, director of Buckinghamshire-based Quainton Hills Financial Planning, said: “In general, for some clients, I recommend having a small amount of commodity exposure through an exchange-traded fund, as long as investors want a hedge against equity markets.”