Legal & General Investment Management has launched a diversified commodity fund on Xetra and Börse Frankfurt.
The L&G Multi-Strategy Enhanced Commodities UCITS ETF – Acc offers investors access to the performance of a diversified commodity portfolio consisting of futures contracts in the following sectors: precious and industrial metals, energy, agriculture, and livestock.
The index invests in the corresponding commodity futures with different maturities of up to one year. When the respective futures contracts are changed, the so-called “rolling”, rolling losses may occur. An optimised roll mechanism is used, to keep the potential losses resulting from contracts in contango markets low and to maximise the potential gains from contracts in backwardation markets.
Backwardation describes a situation where the spot price of a commodity is higher than the futures price. In contango, the futures price of a commodity is higher than the spot price. Contango usually occurs when the price of a commodity is expected to rise over time. This results in a rising futures curve.
Depending on the commodity, different optimisation techniques are chosen, for example, to compensate for seasonal fluctuations in energy commodities or to consider the weather dependency of agriculture through momentum.