ETF investors are getting the weird sense of déjà vu lately, and it’s beginning to feel a bit like 2007. And no, we’re not talking about potentially overvalued equity valuations; we’re talking about investors’ love affair with commodities.
Inflation has once again started to rear its ugly head, and ETF sponsors are beginning to roll out products designed to help combat the fear of rising prices and play the reflation trade. The mighty dinosaur known as Rex Commodities is starting to awake from its slumber and roar. This week saw a plethora of some new hard asset ETFs – including some from an old issuer that has been pretty dormant since the Great Recession.
|Ticker||Name||Issuer||Launch Date||ETFdb.com Category||Expense Ratio|
|(OILU )||ProShares UltraPro 3X Crude Oil||ProShares||03/24/2017||Leveraged Commodities||0.95%|
|(OILD )||ProShares UltraPro 3X Short Crude Oil||ProShares||03/24/2017||Inverse Commodities||0.95%|
|(BCI )||ETFS Bloomberg All Commodity Strategy K-1 Free ETF||ETF Securities||03/30/2017||Commodities||0.29%|
|(BCD )||ETFS Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF||ETF Securities||03/30/2017||Commodities||0.29%|
|(BEF )||ETFS Bloomberg Energy Commodity Longer Dated Strategy K-1 Free ETF||ETF Securities||03/30/2017||Commodities||0.39%|
ProShares Does What It Does Best
Leverage. It’s what put ProShares – its smaller rival Direxion for that matter – on the map. Lately, the issuer has been spending its time moving away from the geared and inverse ETF sector. However, with commodities back on the menu and the gap needing to be filled, Proshares launched its latest leveraged/inverse ETF pair.
The ProShares UltraPro 3X Crude Oil (OILU ) and ProShares UltraPro 3X Short Crude Oil (OILD ) will bet on West Texas Intermediate (WTI) benchmarked crude oil futures. And as the names imply, OILU will provide three times the daily return of its benchmark: the Bloomberg WTI Crude Oil Subindex. While OILD will provide the inverse of the index with the same magnitude of leverage.
If that sounds familiar, it should.
The now defunct VelocityShares Daily 3X Long Crude ETN and its inverse sister were two of the most popular funds of our time. However, since they were ETNs, their growing size proved too much for their sponsor’s balance sheet to handle, and the funds were closed abruptly. Traders have clamored for a replacement for the leveraged duo. Since then, numerous 3x crude oil ETFs/ETNs have launched including one from VelocityShares as the 3x Long Crude Oil ETN (UWT ) and the UBS ETRACS, ProShares Daily 3x Long Crude ETN (WTIU ).
With expenses of 0.95%, OILU and OILD are at the top end of the range of the new products. But as ETFs, they should be able to gather assets quickly as traders/investors seem to prefer the structure over ETNs. In the end, the new funds should become favorites for trading crude oil.
ETF Securities Rises From the Grave
To be fair, ETF Securities didn’t really go anywhere. It was one of the first firms to create and use the idea of physically backed ETFs during the initial commodities boom, and some of those funds remain as popular as ever. But since the bust, ETF Securities hasn’t launched any new products, at least not in America anyway.
This has changed this week with the launch of the ETFS Bloomberg All Commodity Strategy K-1 Free ETF (BCI ), ETFS Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (BCD ) and ETFS Bloomberg Energy Commodity Longer Dated Strategy K-1 Free ETF (BEF ). The trio of ETFs will be actively managed to outperform various commodity benchmarks.
Use our Head-to-Head Comparator tool to compare two longer-dated ETFs issued by ETF Securities.
BCI will bet on all 22 commodities of the popular benchmark Bloomberg Commodity Indices. This will provide exposure to items like wheat, gold, crude oil and copper. The ETF will shift its holdings in a way to derive extra oomph from the index. BCD will only bet on the far-outdated futures contracts on the index and BEF will bet solely on the energy commodities of the benchmark.
The real win for investors is that the ETFs use an offshore subsidiary to make them 1940 Act funds. This removes the dreaded and cumbersome K-1 tax form associated with some futures-based ETFs. Adding to their appeal is that the ETFs are pretty cheap. Both BCI and BCD have a 0.29% expense ratio, while BEF has a 0.39% expense ratio. That makes them the most inexpensive, diversified commodity ETFs out there.
Given the low price, ETF Securities’ natural resources pedigree and lack of a K-1 statement, the trio should quickly find an audience as inflation gears up.
For a list of all new ETF launches, take a look at our ETF Launch Center
The Bottom Line
As inflation is back on the table, expect Rex Commodities to continue to roar. Already, the pace of new hard-asset ETF launches has quickened. If inflation keeps its pace, so too will the number of new funds tackling the issue. This was just the latest salvo.
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