Legal & General Investment Management (LGIM) has launched a multi-factor ETF that offers exposure to a basket of five commodities.
The L&G Multi-Strategy Enhanced Commodities UCITS ETF (ENCO) is listed on the London Stock Exchange with a total expense ratio (TER) of 0.30%.
ENCO tracks the Barclays Backwardation Tilt Multi-Strategy Capped Total Return index which is a portfolio of five commodity futures; energy, precious metals, industrial metals, livestock and agriculture.
The ETF employs a multi-factor strategy that it uses to roll futures contracts at specific points during the market cycle.
The first factor is seasonal which is applied to commodities exhibiting strong seasonality such as heating oil, gas oil and natural gas. The index invests in season futures contracts that provide exposure to a commodity at key points during a production or demand cycle.
The second factor is roll yield which is applied to energy commodities and industrial metals. The index looks to locate the position on the commodity futures curve with the most favourable implied roll yield.
The final factor is momentum which is applied to agriculture and livestock commodities that have historically been strongly influenced by crop and breeding cycles as well as the weather. The index achieves this by investing in futures contracts that exhibit the highest annual outperformance over the nearby futures contract.
Commenting on the launch, Howie Li (pictured), head of ETFs at LGIM, said: “Longer dated futures help with long term performance and drawdown management, by reducing the volatility caused by near-term futures investments.
“This investment strategy considers the risks and opportunities associated with the seasonality of certain commodities investments, roll yield enhancements in managing futures and the momentum effect of certain agricultural investments.”
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