Ossiam launches world’s first smart beta risk-weighted commodity ETF

Sep 12th, 2013 | By | Category: Commodities

Ossiam, a provider of smart beta exchange-traded funds (ETFs) and affiliate of Natixis Global Asset Management, has listed the world’s first risk-weighted commodity ETF, the Ossiam Risk Weighted Enhanced Commodity ex. Grains TR UCITS ETF (CRWU).

Ossiam launches world's first smart beta risk-weighted commodity ETF

Ossiam’s latest product, which has been listed across a number of European exchanges, is arguably the world’s first out-and-out smart beta commodity ETF.

The fund is fully UCITS compliant and provides investors with systematic long-only exposure to a diversified basket of 20 commodities futures contracts (excluding grains) with reduced volatility.

It has been listed on the London Stock Exchange, Borsa Italiana, NYSE Euronext Paris and Xetra.

The fund is linked to the proprietary Risk-Weighted Enhanced Commodity Ex-Grains Index Total Return, an index developed by Societe Generale following initial ideas from Ossiam. The index has been exclusively licensed to Ossiam and is independently calculated and published by S&P Dow Jones Indices.

When compared with standard ETFs tracking long-only broad commodity indices, the underlying index offers potentially better participation from all commodity sectors while avoiding concentration on oil. This enables more efficient risk allocation in a portfolio.

The index combines two particular features in one strategy. Firstly, the investment process enables allocation between 20 commodities futures contracts according to a risk-weighted scheme. The index is rebalanced on a monthly basis, with each commodity future contract weighted in inverse proportion to its realised volatility. This ensures sound risk budgeting by allocating more weight to commodities futures contracts with the lowest volatility.

Secondly, the strategy features an enhanced roll yield mechanism by selecting and rolling futures contracts according to the S&P GSCI Enhanced and S&P GSCI Dynamic methodologies to maximise backwardation and minimise contango.

The underlying principles behind the index are similar to Lyxor’s SmartIX Equal Risk Contribution (ERC) concept and are also reflected in S&P Dow Jones’s S&P GSCI Risk Weight index series, which as yet is not tracked by any ETF.

Commenting on the launch, Bruno Poulin, CEO of Ossiam, said: “The launch of this new ETF based on commodities marks an important stage in our development and is part of Ossiam’s long-term aim to offer an innovative and comprehensive range of smart beta investment solutions to investors. We are showing our industry leadership position in developing and executing alternative-weighted investment strategies that meet the objectives of risk-focused investors.“

Terry Mellish, Head of UK Institutional Business, Natixis Global Asset Management, added:” We believe that Ossiam’s new ETF on commodities will allow investors to potentially gain enhanced portfolio diversification while protecting against inflation. Commodities have historically had a low correlation to traditional asset classes and for this reason we see them as a positive tool for investors trying to broaden their asset exposure and build more durable portfolios. ”

The fund has a total expense ratio of 0.45% and is swap-based. It will be distributed and marketed in the United Kingdom through Natixis.

As of the end of August 2013, Ossiam had some $1.2 billion in assets under management.


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