Morningstar Direct has reported that in Q1 2025, commodity-focused open-end funds and ETFs surpassed liquid alternatives in worldwide total assets under management for the first time since 2012.
The firm writes that this change wasn’t driven by investor flows. “While recently commodity-focused strategies have started gaining traction, net inflows in this space have been broadly muted when looked 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 April 2025, the commodities complex experienced net outflows while alternatives saw net inflows. The primary driver of this shift was the ~40 per cent 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 per cent over the same period. Therefore, market effects, rather than investor flows, 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 highlights two main factors, Morningstar Direct writes.
“Gold’s role: 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.
“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 we have seen several players exiting the space in recent years. This is 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’s important to stress that alternatives include disparate strategies, and their fortunes are not always synchronized. For instance, trend following strategies (aka CTAs) were standout performers in 2022, when stocks and bonds fell simultaneously, but they have faced meaningful losses in 2025 from significant price reversals in major asset classes like the US Dollar.”
Francesco Paganelli, Principal, Manager Research at Morningstar, says: “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 AUM peak, while other commodities like oil are still depressed, presenting potential contrarian opportunities. A significant, recent shift in the liquid alternative universe is the rise of digital assets, which makes historical comparisons more challenging. 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.
“In the end, though, we think investors should avoid timing their allocation to diversifiers. 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.”
