Exchange-traded commodities provider ETF Securities has added to its ETC platform with the introduction of 33 leveraged ETCs on the London Stock Exchange, as well as cocoa, lead, tin and p
Exchange-traded commodities provider ETF Securities has added to its ETC platform with the introduction of 33 leveraged ETCs on the London Stock Exchange, as well as cocoa, lead, tin and platinum based on new sub-indices of the Dow Jones-AIG Commodity Index.
The new launches bring the number of ETC products offered by ETF Securities to 110 and complement the firm’s existing physical, classic, forward and the recently-launched short ETCs which provide investors long and short exposure to the commodities market.
Leveraged ETCs allow investors to earn a positive return when the index is rising with 50 per cent less capital, earning two times the daily change in the index before fees and interest, and are designed to free up additional capital for investors to gain additional portfolio diversification.
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 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 USD250m of additional leveraged ETCs each day, out of a total of USD1bn across its range of 110 ETCs.
In total, ETF Securities now offer platforms of physically backed precious metal ETCs and Classic, Forward, Short and Leveraged ETCs providing exposure to energy, agriculture, livestock, industrial metals and precious metals. The ETCs have been listed on five major European stock exchanges in dedicated ETC trading segments.
‘We have seen unrivalled support and demand for ETCs,’ says ETF Securities chairman Graham Tuckwell. ‘Since we listed the short ETCs two weeks ago, we have been inundated with calls for these new leveraged ETCs.
‘Investors are now realising that commodities can offer benefits to a portfolio due to their low correlation to equities. In times like these when liquidity is tight, leveraged ETCs can provide these diversification benefits with 50 per cent less capital. In times of economic or financial upheaval, many independent studies have shown that commodities can benefit a portfolio by lowering volatility and/or increasing returns.
‘Over the past 13 weeks there has been a huge surge in global demand for ETCs and we recently passed the landmark of USD5.1bn invested in our existing offering. Over this period, assets and trading volumes are up approximately 150 per cent. With listings on five of Europe’s major exchanges, ETF Securities has successfully delivered simple, cost-efficient and accessible products for all investors.’
Pietro Poletto, head of ETF and ETC markets at London Stock Exchange Group, says: ‘Leveraged ETCs are a very welcome new addition to our markets, and with the recently launched short ETCs will take the number of trading products available on our exchange-traded commodities market segment to well over 100.
‘As well as being able to access a broad range of commodities, including for the first time cocoa, lead and tin, investors now have a simple way to gain short and leveraged ETC exposure, putting some of the types of trading strategy used in the equities markets at their fingertips.
‘This additional flexibility will contribute to the growth in our dedicated exchange-traded commodities segment, which has started the year very strongly, with GBP1.3bn worth of trading in January, nearly double the previous monthly record.’