Double Growth in Performance and Scale: Commodity Funds Eyeing the Second Half

The expectation of a Federal Reserve rate cut is one of the main reasons for the good performance of this type of fund in the first half of the year, and its scale has also expanded accordingly.

However, the "rate cut expectation" is often accompanied by a "recession expectation," and potential market risks cannot be ignored.

Commodity funds are one of the highlights of public funds in the first half of the year.

According to the data from Choice of Orient Wealth, this type of fund has created nearly 5 billion yuan in profits for holders in the first half of the year, with an overall return rate of over 10%.

Among the 18 products, only one had a negative return rate in the first half of the year, 16 had returns exceeding 12%, and 16 also outperformed the performance benchmark.

Advertisement

At the same time, despite Bridgewater (China)'s substantial reduction in gold ETF holdings, the scale of commodity funds, including gold ETFs, still increased significantly due to the active influx of other domestic investors, such as private equity funds Beijing LeXi KaiTai and GuoXin Central Enterprise New Development Pattern, etc.

The asset scale at the end of the first half of the year increased by 72% compared to the beginning of the year, and the share scale increased by 51%.

The views of fund managers Xu Zhihan, Zhao Jian, and Zhu Jinyu, among others, are that the expectation of a Federal Reserve rate cut and supply and demand factors are the main reasons for the good performance of this type of fund in the first half of the year.

However, due to the "rate cut expectation" being accompanied by a "recession expectation," potential market risks cannot be ignored.

The return rate for the first half of the year exceeded 10%.

According to the data from Choice of Orient Wealth, the total profit created for investors by commodity funds in the first half of the year was 4.783 billion yuan.

Based on the average scale at the beginning and the end of the first half of the year (43.81 billion yuan), the estimated overall return rate for the first half of the year reached 10.92%.

Specifically, among the 18 commodity funds, the best performance in the first half of the year was a silver LOF tracking the Shanghai Silver Main Force Index, with a return rate of 23.87%, followed by 7 gold ETFs tracking the Gold 999 Index, with a return rate between 14.12% and 14.41% during the same period.

Next were 7 gold ETs tracking the Shanghai Gold Index, with a return rate between 13.40% and 13.78%, followed by a color ETF tracking the Shanghai Nonferrous Metals Index, with a return rate of 12.36%, and then an energy chemical ETF tracking the Yisheng Energy Chemical A Index, with a return rate of 0.06%.

Only one had a negative return rate during the same period, namely the soybean meal ETF (-0.79%) tracking the Dalian Commodity Exchange Soybean Meal Futures Price Index.

In the first two quarters of the first half of the year, the first quarter performed better.

Data shows that the total profit created for investors by commodity funds in the first quarter was 3.091 billion yuan, accounting for 64.62% of the first half of the year's profit.

However, there is a difference between gold and non-gold funds.

Gold ETFs performed better in the first quarter than in the second quarter, while silver LOF, color ETF, soybean meal ETF, and energy chemical ETF performed the opposite.

Taking the Gold 999 Index as an example, its cumulative increase in the first half of the year was 14.66%, of which the first quarter increased by 10.00%, leading the second quarter (4.23%) by 5.77 percentage points.

When talking about the reasons for the good performance of gold in the first quarter, Xu Zhihan, the fund manager of Huaan Gold ETF, mentioned four major factors: first, the interest rate cut cycle is expected to start in the second half of the year, and the overseas monetary environment has a relatively positive impact on gold; second, central banks around the world continue to buy gold, and the demand for gold is stronger than in previous years; third, geopolitical conflicts continue, and against the backdrop of increasing uncertainty in major asset classes, gold has an important allocation value; fourth, the trading sentiment of gold is strong, and the non-commercial net long position of COMEX (New York Commodity Exchange) gold futures exposes a high long position.

When talking about the driving factors in the second quarter, Xu Zhihan only mentioned the first three factors and did not mention the impact of trading sentiment.

As for the Shanghai Silver Main Force Index, Shanghai Nonferrous Metals Index, Dalian Commodity Exchange Soybean Meal Futures Price Index, and Yisheng Energy Chemical A Index, the cumulative increase in the first half of the year was 26.74%, 12.89%, -1.24%, and -0.16%, respectively, with the second quarter being 19.29%, 9.26%, 1.78%, and 2.99%, respectively, leading the first quarter (6.56%, 3.32%, -2.96%, -3.07%) by 12.73, 5.94, 4.74, and 6.06 percentage points, respectively.

Zhao Jian, the fund manager of Guotou Ruiyin Silver LOF, and Li Shao, the fund manager of Dacheng Color ETF, all mentioned in their regular reports the impact of the Federal Reserve's interest rate cut expectations on the commodity market.

The scale has been growing steadily.

Looking at historical data, from 2019 to 2023, except for the negative returns created by commodity funds in 2021, the other years have created considerable returns for investors, with a total of 9.314 billion yuan in returns over five years.

If the first half of 2024 is added, the total returns created in the past five and a half years amount to 14.097 billion yuan.

It is worth mentioning that different types of commodity funds have their own pace and are not always rising and falling together.

For example, in 2019, the return of soybean meal ETF was negative, while gold ETF, color ETF, energy chemical ETF, and silver LOF were positive returns.

In 2020, the return of energy chemical ETF was negative, while the other four types of commodity funds were positive returns.

In 2021, the returns of soybean meal ETF and color ETF were positive, while the other three types were negative returns.

In 2022, all achieved positive returns.

In 2023, the return of color ETF was negative, while the other four types were positive returns.

It is precisely because the returns of commodity funds are relatively certain that their scale is also growing steadily.

According to the data from Choice of Orient Wealth, as of the end of the first half of the year, the scale of commodity funds was 55.454 billion yuan, an increase of 23.288 billion yuan from the beginning of the year, an increase of 72.40%.

At the same time, the share scale increased from 8.614 billion shares to 13.038 billion shares, an increase of 4.424 billion shares, an increase of 51.36%.

Among the five types of commodity funds, the increase in gold ETF shares was the largest, with an increase of 3.293 billion shares during the same period, followed by silver LOF and soybean meal ETF, with increases of 199 million shares and 300 million shares, respectively, color ETF was 80 million shares, and only the share scale of energy chemical ETF decreased by 48 million shares.

In terms of the increase, soybean meal ETF ranked first, with an increase of 85.15%, followed by silver LOF and gold ETF, with increases of 56.07% and 51.75%, respectively, color ETF was 29.98%, and the share scale of energy chemical ETF decreased by 23.24%.

Looking at the structure of holders, individual investors were more enthusiastic about subscriptions in the first half of the year than institutional investors, and the share held at the end of the period accounted for 55.10% of commodity funds, an increase of 2.95 percentage points from the beginning of the year.

Among them, individual investors of color ETF were the most active in subscriptions, with the share held increasing from 19.82% at the beginning of the year to 31.36%, an increase of 11.65 percentage points, followed by energy chemical ETF, with an increase of 11.16 percentage points, gold ETF and silver LOF increased by 2.06 and 1.42 percentage points, respectively, and soybean meal ETF decreased by 6.54 percentage points.

Specifically for gold ETF, although Bridgewater (China) substantially reduced its holdings of this type of product, including private equity funds Beijing LeXi KaiTai and GuoXin Central Enterprise New Development Pattern, there are still many institutional investors actively buying, not only filling the gap left by the former, but also increasing the share scale held by institutions at the end of the first half of the year by 1.67 billion shares, an increase of 26.45%.

However, looking at historical data, investors' enthusiasm for subscriptions may not always be in line with market rhythms.

Taking the situation in 2021 and 2022 as an example, in 2021, commodity funds suffered the largest drawdown in the past five years, and then came out of the trough in 2022.

However, it was also in 2021 that investors, out of a "bottom-fishing" purpose, subscribed to this type of fund in large quantities, resulting in an annual growth of 34.19% in scale at the end of the year, and then, out of a risk-avoidance consideration, redeemed a large amount in 2022, resulting in a year-on-year decrease of 27.72% in scale at the end of the year.

As a result, many investors caught the drawdown in 2021 but missed the rebound in 2022.

Moreover, those who stepped out of rhythm are not only individual investors.

Data shows that at the end of 2021, the share held by institutional investors accounted for 45.74% of commodity funds, an increase of 1.95 percentage points year-on-year.

By the end of 2022, the proportion was 45.52%, a year-on-year decrease of 0.22 percentage points.

As for the investment opportunities in the second half of the year, Xu Zhihan, Senior Director of the Index and Quantitative Investment Department and fund manager of Huaan Fund, said that there is reason to maintain an optimistic attitude towards the medium and long-term allocation value of gold, "First, gold may benefit from the downward environment of U.S. Treasury rates during the interest rate cut cycle.

Second, overseas asset volatility is increasing, focusing on the allocation value of gold in the asset portfolio."

Zhao Yunyang, Director of the Index and Quantitative Investment Department and fund manager of Bosera Fund, also has a relatively optimistic expectation for the future performance of gold assets.

Zhao Yunyang's view is that the election results of the European Parliament show that the dominant power of the right-wing forces is rising significantly, casting a new shadow over the macro prospects of the eurozone, which will increase its demand for risk aversion.

The prospects of the U.S. election are also uncertain, and the market's election bets are repeatedly swaying, "The second half of the year is expected to form a resonance between the election and the monetary policy cycle, and the volatility of gold assets may further increase."

As for silver, Zhao Jian, Assistant Director of the Quantitative Investment Department and fund manager of Guotou Ruiyin, believes that a new round of global monetary easing cycle may have started.

Combining history, in the context of still high inflation and the expectation of a decline in nominal interest rates, coupled with the evolution of deglobalization and de-dollarization processes, and the increasingly fierce geopolitical game, it is expected that the allocation value of precious metals remains high.

"Since this year, silver has performed more eye-catchingly than gold, but from the gold-silver ratio, it is still above the long-term average, and the convergence of the ratio may continue.

"In terms of soybean meal, Rong Ying, a member of the Investment Committee and fund manager of Huaxia Fund, believes that the soybean meal market in the second half of the year will have both risks and rewards, "The factors that need to be focused on are still the weather conditions in the U.S. soybean growing areas and the situation of the U.S. presidential election...

In terms of investment, it is suggested to maintain a broad-minded attitude of not being elated by external gains or saddened by personal losses, which can help to persist and achieve some gains."

Regarding non-ferrous metals, Li Shao, Director of the Index and Futures Investment Department and fund manager of Dacheng Fund, believes that the futures prices of non-ferrous metals such as gold and copper are likely to be a large-scale trend across the year, "On the premise that the copper futures price opens up historical price space, the current gold-copper ratio that deviates from the historical average, coupled with the significant increase in global demand for copper and other non-ferrous metals in the future, will further raise the average price center of copper and other non-ferrous metal futures prices."