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ETF Securities offers investors forward commodity indices via ETCs

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ETF Securities has broken new ground by listing nine new index exchange-traded commodities on the London Stock Exchange today, offering investors the opportunity to gain direct exposure to

ETF Securities has broken new ground by listing nine new index exchange-traded commodities on the London Stock Exchange today, offering investors the opportunity to gain direct exposure to commodity futures prices linked to the Dow Jones-AIG Commodity 3 Month Forward Indices. Another nineteen individual commodity ETCs will be listed in the coming months.

The new ETCs will track 29 individual commodities and baskets of commodities, offering two different maturities for a total of 58 ETCs tracking the Dow Jones-AIG Commodity Index and the DJ-AIGCI 3 Month Forward Indices, which were launched by Dow Jones and AIG Financial Products on September 28.

The first ETCs to track DJ-AIG Commodity Indices were listed on the London Stock Exchange in September last year, since then the existing 29 ETCs have accumulated over USD1.2 billion in assets. The most popular ETCs have been those tracking precious metals and agriculture, which account for 70 per cent of ETC assets. Over the past 12 months, the ETCs have been listed on five European stock exchanges, the London Stock Exchange, Deutsche Börse, Euronext Paris, Euronext Amsterdam and Borsa Italiana.

ETF Securities says substantial demand from investors for access to different parts of the commodity futures curve has led to the creation of the forward ETCs, allowing investors to implement different commodity investment strategies.

The forward ETCs have historically shown lower volatility, while the effects of contango and backwardation – where the future price of a commodity is higher or lower respectively than the spot price – also vary between the existing and new ETCs. The forward ETCs enable investors to optimise returns by increasing exposure to backwardation or decreasing exposure to contango. Investors have been searching for a means to expose their portfolio to the benefits of backwardation, which can provide a source of return in addition to the commodities price return.

‘ETCs have now been available in Europe since December 2003 and their simplicity and structure have now been embraced by the market,’ says ETF Securities chairman Graham Tuckwell. ‘Many investors have approached us showing an appetite for ETCs priced off a range of commodities futures. Increased investor demand and knowledge has resulted in investors wanting access to more choice and alternative trading and investment strategies.

‘Overall there has been a huge surge in global demand for ETCs and we recently passed the landmark of USD1.7 billion invested in our existing offering of 42 ETCs. With listings on five of Europe’s major exchanges, ETF Securities has successfully delivered simple, cost-efficient and accessible products for all investors.

‘With the new range of forward ETCs, ETF Securities is continuing its leadership of the ETC market, having previously delivered platforms of five physically backed precious metal ETCs, eight oil ETCs backed by Shell and 29 commodity ETCs.’

David Shrimpton, head of product management and development at the London Stock Exchange, says: ‘I am delighted to welcome these innovative new forward-based exchange-traded commodities to our market.

‘By offering investors greater choice and flexibility in their commodities trading strategies, I am sure that they will contribute to the growth of our dedicated exchange-traded commodities market, which has already seen nearly GBP4.5bn worth of trading since its launch just over a year ago.’

The Dow Jones-AIG Commodity Index and Commodity 3 Month Forward Indexes are designed to be liquid and diversified benchmarks for the commodity futures market. They are composed of futures contracts on 19 physical commodities traded on US exchanges, apart from aluminium, nickel and zinc, which trade on the London Metal Exchange.

There are also nine sub-indexes representing the major commodity sectors within the index: energy (including petroleum and natural gas), petroleum (including crude oil, heating oil and unleaded gasoline), precious metals, industrial metals, grains, livestock, softs, agriculture and ex-energy.

The nine forward index securities listed today are ETFS Forward All Commodities, ETFS Forward Agriculture, ETFS Forward Energy, ETFS Forward Ex-Energy, ETFS Forward Grains, ETFS Forward Industrial Metals, ETFS Forward Livestock, ETFS Forward Petroleum and ETFS Forward Softs.

The 19 forward individual securities to be listed at a later date are ETFS Forward Aluminium, ETFS Forward Coffee, ETFS Forward Copper, ETFS Forward Corn, ETFS Forward Cotton, ETFS Forward Crude Oil, ETFS Forward Gasoline, ETFS Forward Gold, ETFS Forward Heating Oil, ETFS Forward Lean Hogs, ETFS Forward Live Cattle, ETFS Forward Natural Gas, ETFS Forward Nickel, ETFS Forward Silver, ETFS Forward Soybean Oil, ETFS Forward Soybeans, ETFS Forward Sugar, ETFS Forward Wheat and ETFS Forward Zinc.

The management of ETF Securities pioneered the world’s first listing of an ETC, Gold Bullion Securities, in Australia and London in 2003. The firm’s full ETC platform was listed on the London Stock Exchange last September and subsequently in Frankfurt, Paris, Amsterdam and Milan, with each exchange creating a separate ETC segment.

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