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ETF Securities launches new ETCs based on DJ-AIG futures commodity indices


Exchange-traded commodities pioneer ETF Securities has added to its forward ETC platform with the listing of four new futures ETCs on the London Stock Exchange, offering investors access t

Exchange-traded commodities pioneer ETF Securities has added to its forward ETC platform with the listing of four new futures ETCs on the London Stock Exchange, offering investors access to commodity futures prices linked to the Dow Jones-AIG Commodity 3 Month Forward Indices.

The new securities are forward natural gas, forward heating oil, forward lean hogs and forward live cattle, and the new forward ETCs will track four individual commodity indices. The launch brings to 40 the number of ETCs listed in London that tracking the Dow Jones-AIG Commodity Index and the DJ-AIGCI 3 Month Forward Indices.

The forward indices were launched recently by Dow Jones and AIG Financial Products in response to demand from the market, ETF Securities says, arguing that the new forward ETCs enable investors to implement a greater range of commodities investment strategies.

The Dow Jones-AIG Commodity 3 Month Forward Indices have often shown lower volatility that the established indices, while historical simulations indicate that the effects of contango – where the price of a commodity for future delivery is higher than the spot price, or a far future delivery price higher than a nearer future delivery – and backwardation, its opposite, have tended to show improved performance.

The four new forward ETCs were chosen because the historical performance of their respective DJ-AIG Commodity 3 Month Forward indices had outperformed the original index due to less contango or greater backwardation in the relevant commodity futures.

In addition, ETFS natural gas has experienced significant demand and trading volumes on all five exchanges where it is traded. With USD125m in assets, ETFS natural gas has the greatest assets of any ETC tracking a DJ-AIG Individual Commodity index. Since their launch six weeks ago, the nine forward index ETCs have already accumulated more than USD30m in assets.

Demand for these new ETCs has been driven by investors 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 new ETCs priced off a range of commodity futures.

‘Increasing 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 demand for ETCs, and we recently passed the USD2.2bn mark for investment in our more than 50 ETCs.’

David Shrimpton, head of product management and development at the London Stock Exchange, says: ‘In just a year of operation our ETC market has continually grown and evolved to respond to investors’ need for greater choice and flexibility, so that it now offers trading in more than 50 ETCs, while more than GBP2.4bn worth of ETCs has been traded on the exchange’s electronic order book alone.’

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.

The Dow Jones-AIG Commodity Index and Dow Jones-AIG Commodity 3 Month Forward Indexes are designed to be liquid and diversified benchmarks for the commodity futures market, 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 nine sub-indices, 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, soft commodities, agriculture and ex-energy.

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