Product issuer: ETF Securities
The funds: ETFS All Commodities GO UCITS ETF; ETFS Longer Dated All Commodities Ex-Agriculture And Livestock GO UCITS ETF
These two new commodity-based ETFs are aimed at knowledgeable investors who wish to take advantage of the apparent positive correlation between raw materials and inflation and who subsequently also believe that in an equity market downturn commodities can outperform. According to Howie Li, chief executive of ETF Securities' white-label platform Canvas, the two funds are designed to give 'all-in-one' access to the potential growth and diversification from commodities to investors who wish to avoid the complications of seeking to navigate the various sub-sectors via the futures market.
What the provider says: Li said that from its discussions with the investment community there are two main reasons for the increasing demand in commodity-based ETPs. Commodities historically have provided an uncorrelated return profile and Li believes that demand has increased since the second half of last year. "We view this increase in demand for such alternative exposures to be driven by tactical asset allocation decisions, potentially to defend against the risk in their equities investments but often to provide an inflation hedge as well," he says. "We expect this interest to continue given the potential inflationary backdrop as well as the relatively strong performance of the equities market." ETF Securities also believe there is an increased awareness that including commodities as a long-term element of a portfolio can help manage risks, reduce portfolio volatility and contribute to stronger returns. Li suggests a simple 10% allocation to a basic commodities benchmark can enhance the portfolio in such a manner. "With more investors focusing on risk-adjusted returns across their entire portfolio (i.e. being rewarded for risk appropriately), the diversification properties of commodities as an asset class can work well for long-term strategic allocation too," he adds.
Total Expense Ratio (TER): 0.30%. ETF Securities says its current range of UCITS commodities ETFs is designed to provide a low-cost solution to investors wanting to track a leading commodities benchmark (see below). It has focused on portfolio efficiency to ensure that transaction costs are kept to a minimum at between five and nine basis points, depending on exposure. Li says investors should especially look at longer-dated commodities exposure to improve their experience and that it is important to note the behaviour of the commodities markets. "Whilst the main Bloomberg Commodity index is the most widely used benchmark, some variations of this index (e.g. longer-dated commodity contracts) can provide a better experience for investors if they are looking for less volatility and better long-term performance on an absolute basis and on a risk-adjusted basis," he says. "However, we recognise that some investors still prefer the main benchmark as part of their investment mandate so we will service those types of investors as well with the same focus on low total cost of investing."
Who should be looking to use these funds: ETF Securities says these will appeal to investors that manage a multi-asset portfolio and are wanting the lowest cost product that tracks a widely recognised commodities benchmark. "It will especially appeal to investors looking for a less volatile experience as the features of the 'longer-dated' indices are able to provide that and are not as common found in the market," says Li.
The details of the index/indices: The new fund tracks the Bloomberg Commodity Index which is constructed by Bloomberg and provide a UCITS-compliant diversified exposure to precious metals, industrial metals, energy, livestock and agriculture. It is therefore an index that provides a broad exposure to 22 different commodities in total (less for the version which excludes agriculture and livestock). The construction of the index and its weighting takes into account both the amount of production as well as liquidity of each commodity.