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ETCs infected by swine flu


ETF Securities has seen a surge in volumes and returns of its Short Lean Hogs ETC as the World  Health Organisation (WHO) raised its pandemic

ETF Securities has seen a surge in volumes and returns of its Short Lean Hogs ETC as the World  Health Organisation (WHO) raised its pandemic alert for swine flu to the  second highest level last Wednesday.

ETFS  Short Lean Hogs (SLHO) is up 9% since Friday 24 April 2009 and saw  trading volumes up 207% last Tuesday compared to their average since the  product inception in March 2008. The sharp increase in interest in SLHO indicates that a growing number of investors are using Short ETCs to benefit from an anticipated fall in demand for lean hogs on the swine flu outbreak. US pork import bans have been enacted by Russia, China, the Philippines, Serbia, Kazakhstan and South Korea since the end of last week.  

This week’s rise in SLHO caps a 42% rise since the beginning of September, putting SLHO in the top 5 short ETCs by returns YTD. SLHO has now outperformed the MSCI World Index by 74% since the start of September 2008. Beyond the initial impact of credit crisis deleveraging, lean hog prices have come under sustained pressure as farmers have culled pigs, increasing supply as high feed costs and falling returns have pressured margins.

The  popularity of short ETCs also reflects the fact that many ‘long only’ institutional investors are unable to ‘sell short’ as a result of their mandates and investment regulations. Short ETCs allow ‘long’ funds to go long on a security providing an inverse return to the underlying asset. Short ETCs earn minus one times (- 1x) the daily change in the index (before fees and interest). For example, if the underlying index falls by 2% in a day, a Short ETC will increase by 2% and vice versa.

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