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ETF Securities launches short and leveraged ETCs for 33 commodities and indices


ETF Securities, which has pioneered exchange-traded commodities in Europe, has announced plans to launch 33 short and 33 leveraged ETCs based on 23 individual commodities, the Dow Jones-AI

ETF Securities, which has pioneered exchange-traded commodities in Europe, has announced plans to launch 33 short and 33 leveraged ETCs based on 23 individual commodities, the Dow Jones-AIG Commodities Index and nine sub-indices on the London Stock Exchange.

The short and leveraged ETCs will complement ETF Securities’ 51 existing classic and forward ETCs that already provide investors with long exposure to different parts of the futures curve.

The new series of products includes four new commodities, cocoa, lead, tin and platinum, and brings to 110 the number of ETCs offered by ETF Securities that provide long, short and leveraged exposure to the world’s major commodity markets. The new ETCs are expected to be listed within the next few weeks.

ETF Securities says its ETC platform has experienced massive growth over the past eight weeks, with assets growing by 50 per cent to more than USD3.2bn and daily trading volumes doubling to almost USD80m a day across five European exchanges ((Frankfurt, Paris, Amsterdam and Milan as well as London).

The firm says the sharp increase in assets is down to increased awareness of commodities and ETCs, on the part of investors, volatile equity markets creating demand for uncorrelated assets, positive commodity fundamentals, fears of inflation and annual portfolio rebalancing at the start of the new year.

The short and leveraged ETCs are available on the DJ-AIGCI all commodities index and the agriculture, energy, ex-energy, grains, industrial metals, livestock, petroleum, precious metals and soft commodities sub-indices, and on aluminium, cocoa, coffee, copper, corn, cotton, crude oil, gasoline, gold, heating oil, lead, lean hogs, live cattle, natural gas, nickel, platinum, silver, soybean oil, soybeans, sugar, tin, wheat and zinc.

Short ETCs will enable investors to gain from falls in commodity prices, while leveraged ETCs will offer bigger gains from upward prices movements. Up to now, it has been difficult for investors to benefit from falling prices, since to go short, investors would have to borrow ETCs and sell them in the market, a difficult and relatively expensive process. In addition, shorting exposes investors to unlimited losses, while short ETCs limit the maximum loss to the investor’s initial investment.

ETF Securities says short and leveraged ETCs offer investors a wider range of investment strategies, including pairs trades that bet on one commodity rising or falling in price relative to another, and reducing or increasing commodity price risk where a portfolio includes commodity companies.

It also allows investors to exploit the shape of a commodity futures curve by shorting the part of the curve in contango – where the price of a commodity for future delivery is higher than the current spot price, or a far future delivery price higher than a nearer future delivery – and going long on the part of the curve in backwardation, where the price of a commodity for future delivery is lower than the spot price, or a far future delivery price lower than a nearer future delivery.

ETF Securities says ETCs are highly liquid with multiple market-makers providing liquidity and continuous pricing. Since short and leveraged ETCs are priced off the same underlying markets as existing ETCs, the firm says, this implies that their liquidity will be similar. In addition to liquidity on five European exchanges, ETF Securities can create USD500m of additional short and leveraged ETCs each day, out of a total of USD1bn across its range of 117 ETCs.

‘By offering a full platform of ETCs, investors can now utilise ETCs for almost any commodity investment and trading strategy,’ says ETF Securities chairman Graham Tuckwell.

‘The new short and leveraged ETCs will complement the existing products that provide unleveraged long exposure through classic and forward ETCs. Now investors can take advantage of rising or falling commodity prices in addition to choice of ETCs along each commodity futures curve.

‘Over the past eight weeks there has been a huge surge in demand for ETCs and we recently passed the milestone of USD3bn invested in our existing offering. With listings on five major European exchanges ETF Securities has successfully delivered simple, cost-efficient and accessible products for all investors.’

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