iShares launches five ETFs tracking global commodity producers

Feb 2nd, 2012 | By | Category: Commodities

The flurry of ETF launches seen this year has continued with five new funds from iShares focusing on global developed and emerging market commodity producers.

iShares launches five ETFs tracking global commodity producers

iShares has launched five ETFs tracking global developed and emerging market commodity producers.

Unlike commodity ETCs, which mostly attempt to deliver direct exposure to the underlying commodity, these latest iShares funds are designed to provide access to companies involved in the production of commodities.

By investing in commodity producing companies, investors are able to gain exposure to a target commodity without incurring a number of potential associated costs.

These costs could come in the form of storage costs for physical ownership or negative roll yield in the case of contagoed futures markets.

Investors can also benefit from a degree of operational gearing, or leverage, inherent in commodity producing companies.

Whatever the merits, the funds reflect continued demand from investors for exposure to commodities, which many commentators – the most vocal of whom is perhaps Jim Rogers – believe have entered a multi-year super-cycle.

Indeed, despite anaemic economic growth in the developed world and a slowdown in China, commodities as varied as copper, tin, sugar, cotton, pork bellies, gold and palladium have recently seen their prices surpass the heights reached during the bull market of 2006-2008. Energy commodities, including oil, gas and coal, have also seen a spike in recent months.

While booming emerging market demand is often pointed to as the primary contributor to rising prices, other factors are at play, including production growth constraints, loose monetary policies, and geopolitical instability in the Middle East and West Africa.

With all these factors generally considered supportive of commodities, investors’ appetite for commodity exposure is understandable. Add to that the portfolio-diversifying qualities commodities provide and one can see why iShares has launched these funds.

Traded on the NYSE Arca, the funds, listed below, include the first equities-based solution to express a view on global energy prices.

iShares MSCI Global Agriculture Producers Fund (NYSEArca: VEGI)
iShares MSCI Global Energy Producers Fund (NYSEArca: FILL)
iShares MSCI Global Select Metals & Mining Producers Fund (NYSEArca: PICK)
iShares MSCI Global Gold Miners Fund (NYSEArca: RING)
iShares MSCI Global Silver Miners Fund (NYSEArca: SLVP)

iShares argues that companies at the beginning of the production cycle are more sensitive to fluctuations in the underlying commodity price than companies further down the production cycle which are impacted by factors other than commodity price movements.

For example, investors looking to express a view on global food prices can use the Global Agriculture Producers Fund  (VEGI) to target the front end of the production chain (fertilisers or agricultural materials) while minimising exposure from companies at the end of the production chain (packaging and marketing).

Darek Wojnar, Head of US iShares Product Development and Management at BlackRock said: “Commodities are a key allocation in many portfolios, often used as portfolio diversifiers or a hedge against inflation. Commodity producer ETFs are a unique way for investors to access equity-based exposure to this asset class, wrapped with the diversification benefits of an ETF.”

“These funds offer an excellent example of the flexibility and efficiency of the ETF vehicle in helping investors implement tactical asset allocation strategies focused on taking advantage of the global markets’ most attractive emerging opportunities”, he added.

All five funds track MSCI indices, are physically replicated and come with an expense ratio of 0.39%.

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