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ETF Securities, a leading provider of exchange-traded products, has launched a new product providing exposure to energy commodities while mitigating the effect of currency volatility for euro-referenced investors.
Listed on the Deutsche Börse, the ETFS EUR Daily Hedged Energy DJ-UBS ED (00XU) is linked to the Dow Jones-UBS Energy Sub-index Euro Hedged Daily Total Return Index, a currency-hedged version of the energy component of the widely followed Dow Jones-UBS Commodity Index.
The sub-index is designed to reflect the movement in the price of continuously rolled futures contracts based on Crude Oil, Natural Gas, Brent Crude, RBOB Gasoline and Heating Oil, as well as incorporating a daily rebalanced currency hedge against movements in the EUR/USD exchange rate. The US dollar is the base currency of the underlying index.
The new product complements the ETF Securities’ existing range of EUR daily hedged commodity products. Currency-hedged products help offset the natural currency risk to which an investor in non-local currency assets is exposed. This is particularly useful for investors with specific local currency return mandates. Currency-hedged products also provide shorter-term tactical investors with the ability to increase their returns by choosing the currency of their exposure.
An additional benefit of the daily hedging is the frequency at which the swaps are reset. A product which tracks an index that hedges currency risk on a daily basis will tend to be more accurate in providing returns that reflect true underlying asset returns than those that hedge on a monthly basis or only reset the swaps on a monthly basis.
Commenting on the launch, Neil Jamieson, Head of UK & Ireland at ETF Securities, said: “We made the decision to launch ETFS EUR Daily Hedged Energy in order to complement our existing range of successful euro hedged commodity products. The product will provide a transparent and cost-efficient exposure for our euro-based investors whilst mitigating currency risk.”
So what about the outlook for energy commodities? Since April, the price of Brent has risen by around 10%, while the price of WTI has surged around 20% as stronger-than-usual demand from refineries has helped reduce US oil inventories.
Nicholas Brooks, Head of Research & Investment Strategy at ETF Securities, said: “Energy is integral to economic growth and development and movements in energy prices often have either a direct or indirect impact on most investment portfolios. Therefore energy is a commodity sector that cannot be ignored by investors. Oil prices have historically acted as one of the best hedges against inflation and more recently have provided a hedge against Middle East risk. US natural gas prices are currently trading near their marginal cost of production, indicating potential for longer-term gains. As China and other large population emerging market countries continue to develop, in our view, energy prices will need to rise to incentivise more efficient energy consumption and stimulate the investment and innovation necessary for supply to meet growing demand.”
The product has a management expense ratio (MER) of 0.49%.