cocoa beans Copyright Justin Sullivan, Getty Images

Biggest Outflow Ever Says Cocoa's Stellar Rally May Be Done

More than $12 million has left the product this year, or about a fifth of its assets.

By Yakob Peterseil

(Bloomberg) --The tide could be about to turn for one of 2018’s best-performing commodities.

Investors last week pulled $8.6 million from the Europe-listed ETFS Cocoa Exchange-Traded Commodity, or COCO, in the biggest weekly outflow on record. More than $12 million has left the product this year, or about a fifth of its assets, as traders lock-in gains after a 30 percent rally in the price of cocoa.

The outflows stand out because cocoa is still on a tear, and the commodity remains the number one performer in the UBS Bloomberg CMCI Index. After two miserable years through 2017, it has been surging as key producers such as Ivory Coast, Ghana, and Indonesia struggle to maintain supply. Citigroup Inc. says signs now point to a smaller cocoa surplus in the current season than previously expected, and possibly a small deficit next year.

“A lot of those investors that put money in are taking profit on that bargain-hunting opportunity that arose in the beginning of 2017,” said Nitesh Shah, London-based commodities strategist at ETF Securities, the firm behind COCO. “There was nothing fundamental driving those inflows apart from the fact that it was just cheap.”

Cocoa plunged almost 50 percent from its 2016 peak to its low last year amid ample supplies and slack demand. As it got cheaper, there was a record $40.6 million inflow into COCO in 2017. The current outflows could turn positive again if cocoa prices continue to climb, according to Shah.

“You also get another class of investor move in at this stage, the guys who chase momentum,” he said. “That hasn’t happened yet.”

--With assistance from Marvin G. Perez.To contact the reporter on this story: Yakob Peterseil in London at [email protected] To contact the editors responsible for this story: Samuel Potter at [email protected] Natasha Doff

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