BetaShares Capital Limited (BetaShares) has launched the first diversified commodities basket Exchange Traded Fund (ETF) on the Australian Securities Exchange (ASX) – expanding the investment options available to Australian retail and institutional investors.
The ETF will trade under the ASX code “QCB” and aims to track the performance of the S&P GSCI Light Energy Index. The Index is a diversified commodity index which tracks the futures performance of 24 commodities including six energy, seven metals, eight agricultural and three livestock commodities.
Drew Corbett (pictured), Head of Investment Strategy at BetaShares, said the Commodities Basket ETF will provide Australian investors access to a broad range of diversified commodities in a single trade on the ASX. The ETF provides an opportunity for investors to diversify their existing portfolios: “While most Australian investors are heavily invested in resources companies and may question the need for further commodities exposures, the ETF does not have allocations to coal, iron ore or manganese which are common export products for Australian miners,” Corbett says.
The BetaShares Commodities Basket ETF is also currency hedged, substantially eliminating the impact of movements in the AUD/USD exchange rate to provide a pure commodities exposure.
Physically storing the commodities which comprise the Index would involve significant storage and handling costs for investors, rendering it impractical and costly. Investors around the world use futures to gain exposure to commodities markets and the BetaShares Commodities Basket ETF, like most ETFs globally, tracks the performance of a futures index.
“BetaShares has always sought to adopt the most appropriate structure to deliver investment returns. For example our gold ETF is backed by physical gold bullion and our equity ETFs hold physical shares. For many of the commodities being tracked by the ETF, this is not possible, especially in the case of agricultural products or livestock,” says Corbett.
Instead, the ETF invests all of its assets into cash and obtains exposure to the commodities prices via a swap agreement.
“While the new ETF is considered a “synthetic” ETF, investors should be aware the product is fully backed by cash, ring-fenced and held by a third party custodian for the benefit of investors,” says Corbett.
Investors should also note that tracking the performance of an index based on commodities futures is different from investing in the “spot” price of the commodity. The spot price refers to a quote for immediate payment and delivery of a particular commodity.
Prior to ETFs, investors could use commodities futures or CFDs for “direct” exposures but both have unlimited risk. With an ETF, an investor’s risk is limited to their initial investment and offers dollar for dollar exposure to movements in its benchmark. In addition, as the product provides exposure to a diversified basket of 24 different commodities, investors are able to consider holding the product for longer term exposure.
“Although most commodities ETFs track the futures price, when comparing with other alternatives, ETFs actually provide a simple structure which is unleveraged and easy to purchase. When considering a diversified commodities basket as an investment, a medium to long term investment horizon makes sense and ETFs are an attractive investment vehicle to back this view,” says Corbett.
