Industry Updates

Product launch - new iShares commodity fund

Scott Longley

The fund:

iShares Diversified Commodity Swap UCITS ETF

This new ETF from iShares/BlackRock offers exposure to the Bloomberg Commodity USD Total Return Index at what the company says is the lowest combined TER (of 0.19%) and swap management fee level in the European ETF market.

The fund is available in Austria, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Spain, Sweden and the UK.

The Index provides indirect exposure to a diversified group of different commodity investments. In an effort to fairly represent the importance and economic significance of a diversified group of commodities to the world economy, index weights are based on production and liquidity data. Capping restrictions help to ensure that no single commodity dominates the index at the sector (33%) and single commodity level (15%) to maximize diversification benefits of the BCOM TR index.

The index is reweighted and rebalanced annually, based on the change in price of each commodity, to ensure fair and accurate representation of the global commodity markets. The inclusion of liquidity as a weighting factor helps to maximize the liquidity of the index, to help accommodate significant investment flows.

What the provider says: A spokesperson for BlackRock says the fund provides exposure to a variety of commodity markets, which might suit investors seeking portfolio diversification tools. "This is particularly pertinent at a time when the correlation between historically uncorrelated asset classes is rising and when the global economy appears to have entered a reflationary period," the spokesperson added. "Historically, commodities have often been effective diversifiers during periods of rising inflation."

Why should investors consider using this ETF? The iShares Diversified Commodity Swap UCITS ETF seeks to provide exposure to a well-diversified portfolio of commodity contracts from multiple sectors that include energy, agriculture, industrial metals, precious metals and livestock. "Commodities have historically displayed low correlation with both equity and fixed income assets so they can potentially add additional diversification benefits to a portfolio comprised of those asset classes," says the firm. "This fund offers investors cost-effective exposure to the potential diversification benefits of commodities."

What type of investor will this fund appeal to? BlackRock says this fund might appeal to investors seeking exposure to a broad array of commodities, either because they want to obtain the long-term diversification benefits historically associated with commodities or because they wish to express a view on commodities in an efficient, cost-effective way. "We anticipate strong interest from both retail and institutional investors," the spokesperson added.

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