Large money managers and investors dove into gold bullion and other precious metals in a big way last year. They did so through exchange-traded funds.
ETFs that specialize in precious metals such as gold, silver and platinum netted close to $10 billion in 2016 with the bulk of the interest coming from institutions rather than small investors.
The move comes after years of outflows from the commodities sector, which was hurt by the rising U.S. dollar and the economic slowdown in China.
The golden surge helped boost total inflows into commodity funds of all types to $14.1 billion, the highest amount since 2010, when flows into commodity ETFs and mutual funds totaled $22.6 billion, according to data from Morningstar Inc.
The money that didn't go into precious metals funds last year went mainly to broad-based funds such as the $6.7 billion PIMCO Commodity Real Return Strategy. While these numbers aren't big for fixed-income or equity markets, they are substantial in the commodities field.
Although ETFs are often seen as investment vehicles for small investors, when it comes to commodities the evidence says otherwise.
For instance, the commodities fund that took in the most cash last year was State Street's SPDR Gold Shares, netting $7.2 billion in the 12-month period. Approximately 85% of the fund is owned by institutions with the largest holder being BlackRock Fund Advisors. What's more, BlackRock alone added close to 4.7 million shares (worth approximately $500 million) in the three months ending September 2016, according to data from Morningstar. In the three months ending December 2016, the same institution dumped 2.9 million shares worth more than $300 million.
The iShares Gold Trust ETF has a similar pattern with 88% institutional holdings, the biggest of which is Windhaven Investment Management. The iShares Silver Trust ETF is 96% owned by institutions. However, many top institutional holders cater heavily to individual clients. For instance, Morgan Stanley is the third largest holder of the iShares Silver Trust, and Merrill Lynch is the fourth largest, according to Morningstar. Both have a heavy presence in the wealth management business.