In the first quarter of this year commodity-focused open-ended funds and exchange-traded funds (ETFs) surpassed liquid alternatives in worldwide total assets under management for the first time since 2012, data from Morningstar has revealed.
The interesting side about this change though is it wasn’t driven by investor flows.
While recently commodity-focused strategies have started gaining traction, inflows have been broadly muted when analysed over a three to five-year timeframe.
For instance, in Europe, both liquid alternatives and commodities saw net outflows as investors favoured fixed-income strategies.
Meanwhile, in the US, over the trailing three years through to April 2025, commodities experienced net outflows while alternatives saw net inflows.
The primary driver of this shift was the 40% year-over-year growth in assets under management for commodities-focused products, largely due to a rally in gold prices, which also rose around 40% over the same period.
Therefore, market effects, rather than investor flows, have played a crucial role in this transition, as the bulk of the assets in the commodities group is invested in funds and ETFs providing exposure to the spot gold price.
The swing, noted Morningstar, highlights two influential factors.
Firstly, is the role of gold.
The price has surged due to central banks’ buying, inflation shocks, and geopolitical turmoil, serving as a safe haven in an uncertain environment.
This could further cement gold’s defensive role in a multi-asset allocation context.
Secondly, is a disaffection with liquid alternatives.
Hedge-fund-type strategies like macro trading, systematic trend following, and equity market neutral have struggled since 2018 to attract assets, and several players have exited the space in recent years.
This is, said Morningstar, due to a combination of disappointing performance, inherent complexity and challenges with the implementation of these strategies in a daily liquid format, and higher prevailing interest rates reducing the pressure to seek returns in a zero or even negative interest rate policy environment.
That said, it is important to stress that alternatives include disparate strategies, and their fortunes are not always synchronized.
For instance, trend following strategies, also known as CTAs were, note Morningstar, standout performers in 2022, when stocks and bonds fell simultaneously.
But they have faced losses in 2025 from significant price reversals in major asset classes like the US Dollar.
Francesco Paganelli, principal of manager research at Morningstar, commented: “With gold price near all-time highs, commodities funds may struggle to maintain their recent growth rates driven by market effects. Going forward, their continued leadership could depend more on sustained inflows.”
Notably, though, broadly diversified commodity funds and ETFs remain well below their assets under management peak, while other commodities like oil are still depressed, presenting potential contrarian opportunities, noted Paganelli.
“A significant, recent shift in the liquid alternative universe is the rise of digital assets, which makes historical comparisons more challenging,” said Paganelli.
“The approval of the first spot Bitcoin ETF in the US has propelled digital assets’ AUM to surpass all other liquid alternative categories, driven by sustained inflows and positive performance for crypto assets. As the landscape has evolved, the growth drivers are also likely different today,” he added.
“In the end, though, we think investors should avoid timing their allocation to diversifiers,” noted Paganelli. “Instead, focus on understanding each strategy’s objectives and its role in portfolios – keeping in mind that alternatives, being by definition active strategies, present far higher selection and implementation risks compared to gold-focused trackers.”
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