UBS, one of the largest issuers of ETNs including a number of commodity products, is the latest to make an addition to the fast-growing ETP lineup. The new ETRACS DJ-UBS Commodity Index 2-4-6 Blended Futures ETN (BLND) will take a unique approach to delivering exposure to commodity futures. The underlying Dow Jones-UBS Commodity Index 2-4-6 Forward Blend Total Return consists of futures contracts diversified across multiple maturities–specifically two, four, and six months out. Those three maturities will be equally weighted [see also Five Questions To Ask When Buying An ETF].
Spreading exposure across the maturity curve could potentially reduce the adverse impact of “roll yield” close to spot, which can result from contango in futures markets, while still offering exposure to a diversified basket of natural resources futures contracts. The potential trade-off could come in the form of reduced sensitivity to changes in spot prices; the further down the curve contracts are, the weaker the correlation to the underlying commodity tends to be (though long-dated futures contracts still generally exhibit a fairly strong relationship with spot prices).
Under The Hood
BLND will offer exposure to the same commodities that make up the Dow Jones-UBS Commodity Index, which serves as the underlying benchmark for popular commodity ETNs DJP and DJCI. That benchmark consists of 20 different commodity futures contracts, including aluminum, Brent crude, coffee, copper, corn, cotton, WTI Crude Oil, gold, heating oil, lean hogs, live cattle, natural gas, nickel, silver, soybeans, soybean oil, sugar, unleaded gas (RBOB), wheat and zinc. Like many commodity indexes, there’s a tilt towards energy resources; Brent, WTI crude, heating oil, natural gas, and gasoline combine to make up about a third of total holdings [see also 5 ETF Experts You Need To Follow On Twitter].
| BLND Breakdown | |
|---|---|
| Energy | 32.6% |
| Grains | 22.1% |
| Industrial Metals | 18.6% |
| Precious Metals | 12.6% |
| Softs | 8.3% |
| Livestock | 5.8% |
BLND will charge an annual fee of 0.70%, which comes in below the average for the Commodities ETFdb Category.
Commodity ETF Approaches
There are now about 15 products in the Commodities Equities ETFdb Category, each offering a slightly different path to natural resource futures. Some of the products that diversify exposure beyond front month futures contracts include:
- PowerShares DB Commodity Index Tracking Fund (DBC): Linked to an “Optimum Yield” index, this fund spreads exposure across the futures curve depending on current market conditions in an attempt to minimize the adverse impact of contango. Currently, DBC holds contracts with maturities ranging from May 2012 to March 2013
- ETRACS CMCI Total Return ETN (UCI): This ETN is linked to an index consisting of 26 commodity contracts, with maturities spread out across five different maturities: three months (50% of holdings), six months (25%), one year (15%), two years 6%), and three years (4%).
Disclosure: No positions at time of writing.
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