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BlackRock launches diversified commodities ETF

BlackRock launches diversified commodities ETF

BlackRock has launched an exchange traded fund (ETF) providing exposure to a variety of commodity markets.

The product offers exposure to a basket of 20 different commodities across five sectors, including energy, agriculture, industrial metals, precious metals and livestock.

The ETF is aiming to replicate the performance of the Bloomberg Commodity US Dollar Total Return index.

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That index caps each sector at 33 per cent of the whole, and each commodity at 15 per cent.

The fund uses total return swaps to gain the exposure, as the company take the view that holding the physical commodity is impractical.

Total return swaps are an agreement in which one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of an underlying asset, which includes both the income it generates and any capital gains.

Fergus Slinger, co-head of iShares sales EMEA at BlackRock, said: “Diversification is becoming more difficult to achieve due to increasing correlation between equities and bonds across global markets.

"This fund is a direct response to growing investor appetite for asset classes that offer stronger diversification impact in portfolios, and many are looking to commodities.

“By capping the single commodity and sector exposure in the fund, investors are not overexposed to a particular part of the market.

"It can therefore serve as an alternative to purchasing individual futures or investing directly in physical commodities.”

Adrian Lowcock, investment director at Architas, said: “Exchange traded commodities have been an excellent tool for investors to get direct exposure to an individual commodity or basket of similar commodities where it was either too expensive or too impractical to buy them directly.   

"This ETF seems to reverse that trend as the basket of  commodities is much broader.”

"Whilst correlation between them may have been rising in the short term, over the medium and longer term they have largely been uncorrelated and I would expect that to remain.

"The mix of commodities will effectively reduce the volatility of the investment as some commodities will perform whilst others are not.

"This will avoid the big peaks and troughs whilst the maximum limits on each sector and individual commodities would also force the ETF to rebalance if an asset class performed too strongly relative to the others.

“This sort of vehicle is complex and usually in the past commodity ETFs have been used by professional investors to gain tactical exposure to one or two specific commodities are various times, for example, Wheat ETF when poor weather had destroyed crops."

david.thorpe@ft.com