Analysts at Barclays Capital today said institutional investors accounted for about half of the $225 billion invested in commodity futures or exchange-traded funds in the first quarter. Their report sought to debunk the currently popular theory that the rise in oil prices is due to institutional investor holdings of commodity index linked assets."
We place the total of commodity investments at the end of the first quarter 2008 at $225 billion not actually a very large number at all within the context of either commodity markets or commodity equities, wrote analyst Paul Horsnell in London and his team in Oil Sketches Monthly.
The actual inflow of net new investor money is very modest, the analysts added. Commodity indexes have received a thoroughly undeserved focus in the search for scapegoats for higher oil prices. Commodity exposure held through an index is not the equivalent of holding physical inventory, nor is it a source of demand that vies barrel-for-barrel for influence with China.
Commodity indexes were the preferred investments with $122 billion, followed by commodity ETFs with $46 billion, medium-term commodity notes with $40 billion and commodity-linked mutual funds with $17 billion, the report said.
The Senate is considering new legislation that would limit the participation of large players such as pension funds in commodity markets.