ETF Securities has announced plans to list six new oil Exchange-Traded Commodities on the London Stock Exchange within the next few weeks, offering investors the opportunity to gain direct
ETF Securities has announced plans to list six new oil Exchange-Traded Commodities on the London Stock Exchange within the next few weeks, offering investors the opportunity to gain direct exposure to one-, two- and three-year oil price futures in the Brent and WTI oil benchmarks.
ETFS Brent Oil was first listed on the London Stock Exchange in July 2005 and ETFS WTI Oil was listed in May last year. Since then, oil ETCs have accumulated more than USD200m in assets and are listed on five European stock exchanges including the London Stock Exchange, Deutsche Börse, Euronext Paris, Euronext Amsterdam and Borsa Italiana.
Trading volumes in these two oil ETCs now total USD100m a month and seven investment banks have signed up as authorised participants in oil securities. Demand for the new products is being driven by investors searching for a means to expose their portfolio to the benefits of backwardation, where the price of a commodity future delivery is lower than the spot price or a nearer future delivery, which can provide a source of return in addition to the oil price return.
ETCs are priced off ICE Future’s Brent and Nymex’s WTI oil futures, and the return of ETCs is thus influenced by the shape of the oil future curve. With a total of six new and two existing oil ETCs, investors now have the choice of gaining exposure to a range of four different maturities with varying rates of backwardation or contango, where the price of a commodity future is higher than the spot price or of a nearer future delivery.
Historical simulations show that the performance of each of the four different maturities varies considerably in the short term but is similar over the long term. The ETCs with exposure to the longest maturity had the lowest volatility.
‘ETCs have now been available in Europe since December 2003 and their simplicity and structure have now been embraced by the market,’ says Graham Tuckwell, chairman of ETF Securities. ‘Many investors have approached us showing an appetite for a range of oil ETCs. Increased investor demand and knowledge has resulted in investors wanting access to more sophisticated trading and investment strategies.
‘Currently most investors cannot invest in oil futures due to limited market access and lack of liquidity in pricing, but our response to this problem in the form of an ETC creates a practical and accessible answer for investors. Overall there has been a huge surge in global demand for ETCs and we recently passed the landmark of USD1bn invested in our existing offering of 36 ETCs listed on five of Europe’s major exchanges.’
David Shrimpton, head of product management and development at the London Stock Exchange, says: ‘I am delighted to welcome these new long-dated oil ETCs to our market. Through our Exchange Traded Commodities market investors can gain exposure to commodities without the need to access the futures market.
‘Since its launch last September the market has seen more than GBP3.2bn worth of trading, demonstrating that investors are embracing the opportunity to use these simple commodity products for portfolio diversification.’
ETCs are relatively new investment tools that offer investors exposure to commodity prices without trading futures or taking physical delivery. They provide investors with a return equivalent to movements in their spot price (or futures prices in the case of the new ETCs) less a small management fee that accrues daily.
