Exchange Traded Commodities
ETFs ARE ONE of the more innovative new financial products to emerge from the financial industry in the last two decades. Since the launch of the first ETF in Canada in 1990, ETFs have opened a new panorama of investment opportunities. Essentially, ETFs are open-end index funds that are listed and traded on exchanges like stocks. They allow investors to gain broad exposure to stock markets of different countries, emerging markets, sectors and styles – as well as fixed income and commodity indices – with relative ease on a real-time basis and at a lower cost than many other forms of investing. ETFs are more transparent than traditional funds as the managers provide the ETF portfolio composition to the market on a daily basis.1 Global commodity ETP assets
under management (AUM) rose 33% year-on-year to reach US$171 bn at the end of H1 2011, with on- exchange average monthly trading turnover nearly doubling year ago levels to hit US$167 bn.2
Figure 1: Global ETF & ETP Asset Growth Assets US$ bn
1,000 1,200 1,400 1,600
200 400 600 800
0 1993 2000 Source: BlackRock Investment Institute – ETF Research 3 2005 , Bloomberg. Note: Data as at end July 2011. 2010
July 2011
Investors continue to increase weightings in the asset class –
assets are now nearly triple end-2008 levels. However, the rise in commodity ETP assets has not been straight-line, with a strong rise in assets to an all-time peak of US$191 bn in April 2011 followed by a US$20 bn decline in May and June. Exchange Traded Products provide investors with a wide variety
of investment strategies, with ETPs offering exposure to resource equities, physical, long, forward, leveraged and short exposure to commodity sectors and currencies.
[Commodity] assets are now nearly triple end-2008 levels
ETPs are simple to access as they are traded in multiple
currencies and exchange listed – including the London Stock Exchange, the New York Stock Exchange, the Tokyo Stock Exchange, NYSE-Euronext, Deutsche Börse, Borsa Italiana, and the Australian Securities Exchange. The first commodity ETF was launched in Canada in March
2001. Since then their use has grown multi-fold, especially as the perception that commodities were a good inflation hedge and portfolio diversifier has gained momentum. Commodities as an asset class have typically exhibited low correlations to equity indices, and the advent of commodity ETFs thus allows investors to satisfy asset allocation and diversification requirements, hedge inflation and/or speculate on commodity indices such as the S&P GSCI. Moreover, trading commodity indices as a single exchange traded product avoids the need to manage futures rolls, provides investors with deep underlying liquidity pools, and
# Products 3,000
ETF equity, $1,144 ETF Fixed Income, $237.8 ETF Commodity, $56.7 ETP Total, $198.3 # ETFs, 2,847 # ETPs, 1,170
2,500 2,000 1,500 1,000 500 0
42
September 2011
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