ETF Securities has cross-listed two of its broad commodity ETFs onto Deutsche Börse’s Xetra and Frankfurt exchanges.
Commodities tend to provide traditional stock/bond portfolios with enhanced diversification and a degree of inflation protection.
The ETFS All Commodities GO UCITS ETF (ETLF) tracks an index of front month commodity futures and may be used as a tactical play, a core diversifier or part of an allocation to an alternatives portfolio.
The fund trades in euros and was initially launched on the London Stock Exchange in early July with US dollar-denominated (Ticker: BCOG) and British pounds-denominated (Ticker: BCOM) share classes. Its total expense ratio (TER) is 0.30%.
The underlying Bloomberg Commodity Index is well diversified and contains components in the agriculture (currently approximately 30% index weight), energy (28%), industrial metals (19%), precious metals (16%) and livestock (6%) sectors. The index caps (max 15%) and floors (min 2%) the exposure of any one commodity in the index, resulting in a more balanced index weighting.
The ETFS Longer Dated All Commodities Ex-Agriculture and Livestock GO UCITS ETF (ETLE) tracks an index of longer-dated commodity futures on energy and metals and is likely to appeal to investors seeking broad commodity exposure without an allocation to food-related commodities.
The fund trades in euros and is also listed on the London Stock Exchange in US dollars (Ticker: XAGS) and British pounds (Ticker: XAGG). Its TER is 0.30%.
The underlying Bloomberg ex-Agriculture and Livestock 15/30 Capped 3 Month Forward Index tracks constituents from the energy (44%), industrial metals (34%) and precious metals (22%) sectors. By investing in longer-dated contracts, the index attempts to mitigate some of the costs inherent in rolling the underlying futures.
The two ETFs are designed for investors who want ‘all-in-one’ access to commodities for growth and diversification, but who wish to avoid the challenges of navigating several sub-sectors themselves via futures.
Commodities tend to have a positive correlation with inflation which can be attractive to certain investors. During periods of high inflation and equity market downturns, commodities have historically outperformed most other asset classes and provided some protection against downside macroeconomic risks.
However, research shows that the degree of inflation-protection varies by commodity. In general, commodities which are storable (ie: not agricultural commodities) tend to provide a better hedge. In this way, ETLE may be better suited for investors seeking this type of protection.
Howie Li, CEO of Canvas, ETF Securities, commented: “Knowledge of the longer-term benefits as well as the understanding of uncorrelated risk contribution by this asset class has increased. With the demand for a well-diversified commodities exposure continuing to grow, we are focused on providing investors with a wider range of broad commodities solutions with a particular focus on efficient transaction costs to help reduce the cost of investing in this asset class.”