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Energy Commodity Exposure Is At An All-Time Low: How To Play It

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According to a recent Flow of Funds report issued by Credit Suisse, energy commodity exposure is at all-time lows, at -22 percent. Holdings in this asset class are at an all-time low.

As per the firm's data, over the last week, U.S.-listed Exchange Traded Products (ETPs) saw net inflows of more than $3.5 billion, with domestic equity ETPs capturing more than $1.2 billion. Year-to-date, inflows now surpass $24 billion.

On the other hand, international equity ETP inflows reached $1.7 billion last week. Funds tracking MSCI EAFE witnessed some of the largest creations.

Moreover, the analysts noted, the net inflows took place even in spite of net outflows of $1 billion from Emerging Market ETPs.

Also experiencing outflows were Bond ETPs, which saw net outflows of $500 million, with substantial redemption activity in high yield.

Related Link: If Commodity Prices Don't Recover, These Investors Lose

Finally, in the lending market, it became cheaper to short Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF (NYSE: ASHR), iShares Russell 2000 Index (ETF) (NYSE: IWM), and SPDR Barclays Capital High Yield Bnd ETF (NYSE: JNK).

On the contrary, it became significantly more expensive to borrow iShares JPMorgan USD Emer Mkt Bnd Fd ETF (NYSE: EMB), PowerShares DB US Dollar Index Bullish (NYSE: UUP) and Sector Spdr Trust Sbi (NYSE: XLI).

Where Is The Money Going?

If energy commodity exposure is at all-time lows, where is the money going?

Large-cap and technology funds that saw the strongest inflows last week.

In a recent report, Investec’s Hunter Hillcoat explained why he expects the commodity market to remain "subdued" for "several years to come" with a "modest" recovery only in or after 2018.

Among companies to avoid the analyst named BHP Billiton Limited (ADR) (NYSE: BHP), Rio Tinto plc (ADR) (NYSE: RIO) and Glencore International PLC, St. Helier (OTC: GLCNF), mainly due to the “cheap debt” they have "gorged themselves" with over the past five years.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

 

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Posted-In: Credit Suisse Hunter HillcoatAnalyst Color Commodities Economics Markets Analyst Ratings ETFs

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