Gold exchange-traded products (ETPs) and metals funds are expected to benefit the most from positive flows into the commodities sector this year, with an environmental, social and governance (ESG) focus crucial to maximising inflows, research from European exchange-traded fund provider Tabula Investment Management shows.
The study by Tabula found that 84% of professional investors expect positive flows into the almost $90-billion European-listed physical gold ETP sector this year. About 17% of those surveyed said they expect these flows to be “strong”.
Tabula says the attraction of metals for diversification is the main reason for increased allocations according to 61% of investors, while 48% say increased competition is driving interest. About 44% point to an increased focus on sustainability and ethics.
The research of 200 gold investors at European pension funds, wealth managers, insurers and family offices, responsible for over €800-billion in assets under management, showed strong optimism about allocations to metals investment vehicles in general over the next two years.
Sixty-seven per cent of investors in the UK, Germany, Switzerland, France, Italy and the Nordics predict dramatic increases in allocations to funds focusing on metals and metal miners, while 41% predict dramatic increases in allocations to physical commodity ETPs as the table below shows.
The study for Tabula, which recently announced the launch of an ESG-focused physical gold exchange-traded commodity (ETC), the SMO Physical Gold ETC, found the key factor for investors allocating to a new gold ETC is its ESG focus.
“The ability for investors to trace where the gold in an ETC has come from ranks ahead of product fees or whether it offers physical or derivative exposure,” says Tabula.
In terms of switching between exchange-traded gold products, Tabula says the focus on ESG and ESG credentials is the second most important factor, behind physical or derivative exposure and ahead of physical delivery and product fees.
Nearly 90% of investors believe less than half of the gold held in physical gold ETCs is traceable to source, the research found.
The SMO Physical Gold ETC is the first exchange-traded physical gold product to offer full traceability of gold bars from mine to vault, Tabula says.
“The gold sector and metals in general are expected to benefit from positive flows this year and next, with metals and mining funds and commodity ETCs set to see the strongest flows.
“The attraction of the sector for diversification is the key draw for listed gold products, but the sector’s focus on ESG and ability to deliver for investors on that front is becoming increasingly important,” says Tabula CEO Michael John Lytle.
“Our research shows that, for many investors, ESG credentials are an important factor for competition among gold ETCs. Responsible sourcing and traceability are issues that need to be addressed if a provider is serious about ESG,” adds Tabula CIO Jason Smith.