Legal & General teams up with Source to launch commodity ETF

Jan 9th, 2012 | By | Category: Commodities

Marking its entry into the fast-growing ETF market, Legal & General Investment Management (LGIM) has teamed up with exchange-traded product specialist Source to launch the LGIM Commodity Composite Source ETF (LGCU).

Legal & General teams up with Source to launch commodity ETF

Marking its entry into the growing ETF arena, Legal & General has teamed up with Source to launch a commodity ETF.

The fund tracks the LGIM Commodity Composite Index and is designed to offer high quality, diversified exposure to commodities in a UCITS-compliant ETF.

The LGIM Commodity Composite Index uses LGIM’s expertise as an index manager, and an in-depth quantitative and qualitative screening process, to deliver exposure to a broad-based selection of ‘best of breed’ commodity indices.

Graeme Dewar, Head of Strategy Implementation at LGIM, said “We are seeing increasing demand from pension clients looking for access to this asset class.  Their primary requirements are for an efficient, dynamic product with diversification of counterparty risk.

“Our solution has been to develop an innovative type of benchmark index that includes a minimum of three constituent sub-indices.  These sub-indices are selected using LGIM’s experience and core skill set to deliver a high quality, dynamic commodity composite index.”

To achieve diversification of the index, the composite references a number of sub-indices. At launch, this comprises four sub-indices which provide exposure to oil and other energy commodities, agricultural and soft commodities, precious metals, such as gold, and industrial metals. The sub-indices will be reviewed at least annually to ensure that they capture developments in commodity indexation.

Source’s ETF structuring methodology combines physical investment in US Treasury Bills with a swap overlay to provide more consistent index tracking.

In response to recent concern about swap-based, or so-called ‘synthetic’, ETFs, the fund diversifies counterparty risk by entering into swap agreements with multiple counterparties.  The four appointed swap counterparties are Barclays Capital, Citigroup, JP Morgan, and UBS.

Commenting on the launch, Source CEO Ted Hood said, “Single-commodity ETCs are useful for investors who want to build a tailored portfolio. But, like LGIM, we see the need for a well-constructed commodity index, providing diversified exposure, at a reasonable cost and in a UCITS-compliant fund”.

The LGIM Commodity Composite Source ETF is listed on the London Stock Exchange and trades in GBP and USD. It is registered for sale in Austria, Finland, France, Germany, Ireland, Italy (for institutional investors only), Luxembourg, the Netherlands, Sweden and the UK.

Product Summary:

Product Name LGIM Commodity Composite Source ETF
ISIN IE00B4TXPP71
Base currency USD
Trading currency GBP / USD
Management Fee 0.40% per annum
Average Swap Fee 0.45% per annum
Listing London Stock Exchange
Benchmark LGIM Commodity Composite Index
Benchmark Bloomberg Ticker TGPLGCC <Index>
UCITS compliant Yes
Domicile Ireland

 

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