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Commodities Funds: Handle With Care

Energy funds saw surprising inflows in January, but opportunistic investors should be mindful of the volatility and refrain from trying to time the market.

Alina Lamy: In this week's chart, we are going to take a look at the money that flowed in and out of various categories of commodities funds over the past six months.

Oil prices have continued to decline, from $49.20 a barrel last August to $33.66 at the end of January--that's a 32% decline. Normally, when an asset class experiences that kind of a drop in value, we would expect to see drastic outflows. Interestingly, however, flows into energy funds have been mostly positive over this time period. Seeing how prices have reached such an extreme low, these positive flows suggest that some investors are betting on a possible reversal sometime soon and are trying to time the bottom. That's a speculative and very risky strategy.