Commodities funds: Gold continues to be the forefront commodity in Q1 2024

Key highlights

• The UK hosts the largest of Islamic commodities funds, valued at US$714.7 million.
• The Asia Pacific region experienced the least assets under management (AuM) growth in Q1 2024.
• Gulf African Bank in Kenya launched a commodity trading platform, Halal Pesa.

Overview

Supply shock for commodities eased in 2024 with positive prospects on adequate crop supply for corn, wheat and soy. Demand has also slowed, which weighed on prices. Expected weather patterns shift from El Nino to La Nina could further improve supplies for rice, cocoa and other crops which are rainfall-dependent, but trade route challenges due to regional strife may put a dent on this positive aspect.

On the metal commodities front, lagging industrial smelting in China caused a drop in supply, and the boom in copper demand supportive of green energy transition assists in metal price recovery. Energy commodities like crude, natural gas and coal have eased from their previous highs, seeing that global monetary easing is very likely delayed combating inflation.

Gold hit a high of US$2,062 per ounce at the end of 2023 as investors sought shelter from global tension in Gaza and Ukraine. At the time of writing, the gold price hovered around US$2,330. India — another major importer — continues to import more. The high gold price has many Indian retail investors waiting for dips, with demand far from absent.

As of Q1 2024, the IFN Investor Funds Database recorded 10 Islamic commodities funds globally with the UK managing one and having the highest AuM. This singular fund is valued at more than 90% of the total AuM of all funds combined globally. All 10 tracked funds invested in gold as the main commodity.

Islamic commodities funds were relatively sluggish moving into 2024 with relatively weak returns. Only one fund from the Middle East has shown significantly better growth than the rest of the world.

The IFN Investor Funds Database broke down all commodities funds globally to study the objectives of fund managers who invest in this asset class. We realize that 93% of investments in the commodities asset class are being engineered to be income funds, 3.3% as exchange-traded funds (ETFs), 2.77% as part of an index fund and the remainder acting as a retirement fund, feeder fund or growth fund.

The largest country by AuM in the commodities asset class is the UK according to the IFN Investor Funds Database. The Royal Mint Responsibly Sourced Physical Gold ETC, managed by HANetf Management with AuM of US$714.7 million, is the only fund in the nation. Egypt’s Azimut Asset Management manages the second-largest fund, the AZ-Gold fund. Malaysia’s AHAM Capital Asset Management and OUD Asset Management manage four funds in total, while Pakistan and Saudi Arabia manage two funds each.

AuM growth

On a regional level, Islamic commodities funds in all regions grew slowly. The large decline in the African region is due to a fund which IFN Investor has tracked prior to the 2024 period, but is no longer trackable in Q1 2024, namely the Skybound Shariah Trade Finance Fund.

Africa: from US$108.25 million to US$21.44 million, 80.19% decrease

Middle East: from US$11.55 million to US$11.62 million, 0.55% increase

Europe: from US$712.06 million to US$714.7 million, 0.37% increase

Asia Pacific: from US$26.2 million to US$26.24 million, 0.15% increase

Data for Americas is not available.

ROI analysis (Three-month returns)

New players and products

2023 witnessed one commodity fund launched by Azimut Egypt Asset Management with total AuM of US$21.5 million. The fund allocates 95% of its investments to gold, with gold prices determined by the Egyptian Exchange.

In 2022, the Gulf African Bank partnered with telecoms company Safaricom to launch Halal Pesa in Kenya. This is Kenya’s first Shariah compliant trading platform that offers digital financing and commodity trading.

In Malaysia, Bursa Suq As-Sila (BSAS) serves as a trading platform specifically designed to support Islamic financial institutions in managing liquidity and financing. This national initiative partners with Bank Negara Malaysia, Securities Commissions Malaysia and Malaysia International Islamic Financial Centre. This effort solidifies Malaysia’s leadership in both Islamic finance and the crude palm oil industry. BSAS is Malaysia’s first commodity trading platform that strengthens its position as an international Islamic financial hub.

Sedania As Salam Capital, a wholly-owned subsidiary of Bursa Malaysia, is a technology provider that empowers financial institutions with Islamic fintech solutions. Sedania launched the As-Sidq commodity trading platform in 2009 that facilitates secure, real-time brokerage services of digital commodities for financial institutions.

Outlook

The price of gold, supported by investors seeking a safe haven, is projected to reach a new high in 2024 before easing slightly in 2025. Gold is unique among assets, frequently appreciated during times of geopolitical and policy uncertainty. The robust demand from central banks in developing countries, coupled with heightened geopolitical tensions is anticipated to support gold prices through 2024.

Geopolitical tensions remain a significant factor, particularly in oil-rich regions, influencing commodity prices and supply chains. Technological advancements, including blockchain and digital platforms, are enhancing transparency and efficiency in commodity trading, benefiting the Islamic commodity markets.

This report was produced by Aravinth Rajendran and Elliot Yip, financial data analysts at IFN Investor.