iShares offers exposure to most actively-traded global commodities

According to iShares, the products have been designed to provide high levels of transparency and risk management in the ETFs market.

The additions are all entitled Dynamic Roll with options to invest in the broad commodities market, agriculture, energy or industrial metals.

Axel Lomholt, head of iShares product development EMEA, said: “These new products are the latest step in our efforts to bring new levels of disclosure, transparency and risk management to the ETF sector.

“They are based on iShares’ unique multi-counterparty swap platform and set a standard for the quality and level of collateralisation that we believe can help improve the market for ETFs.”

The ETFs will track the new Standard & Poor’s GSCI Dynamic Roll indices and offer diversified exposure to the performance of the most actively-traded global commodity futures contracts in each sector.

According to iShares, they will offer an alternative to purchasing individual futures or investing directly in physical commodities.

The ETFs will be managed using iShares multi-counterparty swap-ETF platform and offer diversification of swap positions among multiple counterparties unaffiliated with BlackRock.

Counterparty exposure will be managed through over-collateralisation of up to 120 per cent on a daily basis.

Mike Deverell, investment manager for Cheshire-based IFA Equilibrium Asset Management, said: “These products look good. The risk management and transparency is a real development. Multi-counterparties mean risk is diversified. They are also over-collateralised so that removes some of the risk too.

“The synthetic ETFs do have some benefit because they can track the index much closer. Products like this could suit a multitude of investors.”

Daily product information including collateral and index holdings, swap counterparties, aggregate swap exposure and swap spreads will be updated for investors on the iShares website. The company will also aim to offer clarity in product labeling.

Mr Lomholt said iShares had seen a sustained interest from professional investors for new commodity exposures driven by a desire to diversify.

Mr Deverell said the commodity focus made the products “extremely high risk” with high volatility and for that reason he would not consider them.

He added: “With commodities-based ETFs, they tend to be more swap-based and synthetic. Perhaps by launching a risk-managed transparent variety of them BlackRock is hoping to pull existing business to them.”

Equilibrium’s recommendation of ETFs as a whole depended on the structure. Mr Deverall explained that although the synthetic products have collateral, there was still an element of counterparty risk.

“And sometimes the collateral does not match what the fund is trying to there is a mismatch of risk,” he said.