Commodity-focused funds have overtaken liquid alternatives in global assets under management (AUM) for the first time since 2012, according to Morningstar data for Q1 2025.
The milestone marks a significant shift in investor exposure, though it has been driven more by market performance than fresh inflows.
While interest in commodity strategies has picked up recently, net flows over the past three to five years remain subdued.
In Europe, both commodities and liquid alternatives have seen outflows, with investors favouring fixed-income options.
In the US, commodity funds posted net outflows over the past three years through April 2025, even as alternative strategies attracted new assets.
The decisive factor in commodities’ rise was a sharp rally in gold, with prices and AUM for gold-linked funds each rising around 40% year-on-year.
Given that a large proportion of commodity fund assets track the spot gold price, the market-driven performance surge rather than inflows was key to this reordering.
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The shift underscores two broader trends. First, gold’s defensive appeal has been reinforced amid central bank purchases, inflation concerns and geopolitical instability.
As a result, gold may play an increasingly prominent role in diversified multi-asset portfolios.
Second, appetite for liquid alternatives has cooled. Strategies modelled on hedge funds – such as macro trading, systematic trend following and equity market neutral – have faced challenges since 2018.
Underperformance, complexity and implementation issues in daily liquid structures have all played a part, alongside reduced urgency to seek returns in higher-rate environments.
Still, fortunes across alternative strategies remain varied: trend-following funds, which excelled in 2022, have suffered losses in 2025 following reversals in key assets such as the US dollar.
Francesco Paganelli, principal, manager research at Morningstar, noted: “With gold near all-time highs, commodity funds may struggle to sustain growth based on market effects alone. Future leadership could depend more on consistent inflows.”
He also flagged the growing role of digital assets. The approval of a spot Bitcoin ETF in the US has driven crypto funds’ AUM past all other liquid alternative categories.
“Investors should avoid trying to time diversifiers,” Paganelli added. “Instead, focus on each strategy’s purpose and risk – especially for active alternatives, which carry far greater selection and implementation challenges than gold-tracking funds.”