InvestmentsMay 9 2016

WisdomTree taps commodities drive with ETF launch

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WisdomTree taps commodities drive with ETF launch

WisdomTree has launched an alternative index commodity exchange-traded fund (ETF) to tap into a potential revival in the sector’s fortunes.

The Ucits ETF will track the Optimised Roll Commodity Total Return Index. The index weights its commodity exposure based on the Bloomberg Commodity Index, but also incorporates a “smart roll mechanism”.

The mechanism aims to reduce the impact of commodity futures curves rising when the ETF rebalances once a month.

Without this, returns can suffer if the curve becomes upward sloping during the month – a trend that would force the fund to sell low and buy high when rebalancing.

The Ucits fund will be US dollar-based but offer sterling share classes, with a total expense ratio of 0.35 per cent.

WisdomTree said the fund will synthetically track its index. The product will hold US Treasuries to manage its collateral calls.

The provider said: “It is not practical to physically invest in a range of commodities. The fund gets its commodities exposure through an unfunded total return swap that tracks the underlying futures contracts representing the 22 components of the Bloomberg Commodity Index.”

WisdomTree said the roll mechanism has allowed the Optimised Roll Commodity Total Return Index to consistently outperform the Bloomberg Commodity, S&P GSCI Total Return and Thomson Reuters CRB indices.

Viktor Nossek, the company’s director of research in Europe, said the mechanism removes one of the main barriers to maintaining a long-term passive allocation to commodities.

He added: “Across the commodity sectors, fundamentals have improved; ranging from a steadier environment for the oil price, to negative interest rates likely to benefit sentiment towards gold.”

WisdomTree Europe co-chief executive Hector McNeil said: “The new Enhanced Commodity Ucits ETF offers a unique combination of exposure to broad commodities based on the underlying weights of the Bloomberg Commodity Index and enhanced roll returns.”