Weekly flows analysis from ETF Securities shows that oil ETFs saw outflows of $73 million on the back of profit taking during the week commencing 30 October. Oil has risen steadily in price since the summer and the outflows come as Brent crude closed at a two-year high of $64.27 on 6 November.
The ETFS Brent Crude is up by over 30% in the last four months.
The ETFS Brent Crude (BRNT LN), which has $115m in assets, is up by 31.5% since the start of July this year.
OPEC is finally managing to bring its members into line and reduce output which is putting pressure on oil stocks and driving prices higher. During the week, API reported a reduction in crude and oil product stocks in the US, and a Reuters survey indicated OPEC production fell by 80,000 barrels per day during October thanks to a reduction in output from Iraq.
Aneeka Gupta, equity & commodities strategist at ETF Securities, commented: “So far the oil rally has been supported by deep OPEC cuts and a cyclical upturn in the economy. This seems unlikely to last and should weigh on oil prices in the near term. Speculative net long positioning in Brent has risen to a record level, two standard deviations above the five-year average, suggesting a stronger potential for a correction in Brent vs WTI crude oil prices.”
The week also saw significant flows into gold ETFs, which gained $20.6m in net new assets. This marks the second consecutive week of inflows, bringing one-month net news assets to $247m, although the pace of inflows slowed during October in part due to employment data from the US on 3 November pointing to further rate hikes from the Fed.
“With payroll gains averaging about 162,000 over the prior three months and the economy nearing maximum employment, the third rate hike by the Fed this year seems certain, adding further downside pressure to gold prices in the near term,” said Gupta.
In the equity space, the firm’s thematic ETFs and European ETFs also saw notable flows during the week. The robotics and cybersecurity sub-sectors, covered by the ETFS ROBO Global Robotics and Automation GO UCITS ETF (ROBO LN) and the ETFs ISE Cyber Security Go UCITS ETF (ISPY LN), gained $14m and $4m in net new assets respectively. So far Q3 earnings have been broadly positive for these two sectors – 76% of global cybersecurity stocks and 65% of technology stocks beat expected earnings.
Gupta added, “Interestingly, a large number of cybersecurity stocks have beaten analyst earnings by a wide margin. While valuations remain high in both sub-sectors, they are broadly in line with the long-term average of the technology sector.”
Inflows into European equity ETFs were recorded at $5m, according to ETF Securities, in a week that saw the DAX 30 and the FTSE 100 post new record highs. Gupta commented, “Eurozone manufacturing PMI rose to a six-year high of 58.5 in October bolstering expectations of a continued recovery in the Euro region. Despite the first rate hike by the Bank of England in a decade, a softer inflation outlook and Brexit uncertainties indicated they were in no rush to hike rates again supporting UK equities.”