Energy Commodity Exposure Is At An All-Time Low: How To Play It

According to a recent Flow of Funds report issued by Credit Suisse, energy commodity exposure is at all-time lows, at -22 percent. Holdings in this asset class are at an all-time low.

As per the firm's data, over the last week, U.S.-listed Exchange Traded Products (ETPs) saw net inflows of more than $3.5 billion, with domestic equity ETPs capturing more than $1.2 billion. Year-to-date, inflows now surpass $24 billion.

On the other hand, international equity ETP inflows reached $1.7 billion last week. Funds tracking MSCI EAFE witnessed some of the largest creations.

Moreover, the analysts noted, the net inflows took place even in spite of net outflows of $1 billion from Emerging Market ETPs.

Also experiencing outflows were Bond ETPs, which saw net outflows of $500 million, with substantial redemption activity in high yield.

Related Link: If Commodity Prices Don't Recover, These Investors Lose

Finally, in the lending market, it became cheaper to short Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF (NYSE:ASHR), iShares Russell 2000 Index (ETF) (NYSE:IWM), and SPDR Barclays Capital High Yield Bnd ETF (NYSE:JNK).

On the contrary, it became significantly more expensive to borrow iShares JPMorgan USD Emer Mkt Bnd Fd ETF (NYSE:EMB), PowerShares DB US Dollar Index Bullish (NYSE:UUP) and Sector Spdr Trust Sbi (NYSE:XLI).

Where Is The Money Going?

If energy commodity exposure is at all-time lows, where is the money going?

Large-cap and technology funds that saw the strongest inflows last week.

In a recent report, Investecs Hunter Hillcoat explained why he expects the commodity market to remain "subdued" for "several years to come" with a "modest" recovery only in or after 2018.

Among companies to avoid the analyst named BHP Billiton Limited (ADR) (NYSE:BHP), Rio Tinto plc (ADR) (NYSE:RIO) and Glencore International PLC, St. Helier (OTC:GLCNF), mainly due to the cheap debt they have "gorged themselves" with over the past five years.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

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