NICHOLAS BROOKS<br />HEAD OF RESEARCH AND INVESTMENT STRATEGY, ETF SECURITIES<br /><br />DURING the first half of 2009, exchange-traded commodities (ETCs) in industrially-focused precious metals &ndash; silver, platinum and palladium &ndash; as well as industrial metals all saw rapid rises in inflows as cyclical indicators rebounded. <br /><br />Although recent months have seen outflows in individual industrial metal ETCs, the broad basket product has seen a majority of inflows, suggesting that most investors were looking for a diversified play on a &ldquo;hard asset&rdquo; theme &ndash; whereby tangible assets are preferred &ndash; as well as basing their decision on longer-term sector fundamentals. <br /><br />With the economy picking up, investors&rsquo; demand &ndash; especially in China &ndash; for industrial metals is expected to continue apace.<br /><br />After a sharp rise in inflows into oil ETCs in the first six months of the year as oil prices collapsed towards $30 per barrel, we have recently seen outflows in oil ETCs increase as investors have booked profits, with the oil price settling into a new $60-$70 trading range (perceived as closer to analyst estimates of the marginal cost of oil production).<br /><br />But if these asset classes are no longer the preferred option, what assets are exchange-traded funds (ETFs) choosing to place their money in? Well, it would appear from the data that investors are now favouring more defensive options such as gold and agriculture.<br /><br />The recent rise of gold to consolidate above the $1,000 an ounce mark &ndash; and further upside predicted &ndash; has been the principal driver of inflows into gold ETCs.&nbsp; <br /><br />Agriculture ETC investment growth has been equally impressive over 2009, with inflows of over &pound;750m so far this year. As with ETCs of industrial metals, flows have principally been into the agriculture basket product, with holdings steadily rising throughout the price swings seen in the underlying constituents during the first six months of 2009. <br /><br />Agriculture historically has a low correlation to the business cycle, which has made it an attractive long-term diversification tool for portfolios.&nbsp; <br />