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UBS Global Asset Management has listed three new exchange-traded funds (ETFs) on the London Stock Exchange. The ETFs, which are physically replicated and fully UCITS-compliant, provide investors with concentrated exposure to gold, copper and oil via those companies involved in the exploration and production of these commodities.
While commodity producers, in general, are relatively well covered by existing products, these ETFs appear to have a competitive edge. This edge stems in part from the markets they track, but also from the innovative index methodology behind the ETFs’ underlying Solactive benchmarks.
The oil and copper ETFs are the first in Europe to offer pure exposure to oil and copper producers. Current offerings tend to bundle oil and copper exposure with gas and other metals, respectively.
In addition, the innovative index constituent selection process of these two ETFs specifically favours companies with a higher correlation to the underlying commodity spot price, meaning investors can be more confident that the ETF will track their desired commodity. As an example, the oil ETF excludes ‘oil majors’ BP and ExxonMobil, which generate significant revenues from gas production, as there are smaller players exhibiting a higher correlation to the oil spot price which take precedence.
The gold ETF will face stiffer competition. But here, too, the ETF adds value. Existing gold ETFs typically weight all members of the ‘gold’ industry (based on conventional industry classifications) by market cap, taking little account of the intensity of underlying gold production. As a result, these conventional capitalisation-weighted ETFs tend also to provide significant exposure to other metals, most notably copper and silver, which are common by-products of gold mining. While it makes perfect commercial sense to exploit these assets, it does alter the business characteristics of the company and corrode the pure gold exposure. The new UBS ETF attempts to get around this by only including companies who generate at least 90% of their revenues from gold mining. Furthermore, the ETF applies a constituent weighting cap of 4.75%, meaning smaller, purer gold miners receive a relatively larger weighting.
Andrew Walsh, UBS Head of ETF UK, said: “These new ETFs give investors a UCITS-compliant option to gain access to individual commodities via physically replicating ETFs. The ETFs make up a widely diversified basket of global companies from the gold, copper and oil industries. The underlying constituents’ share price movements themselves have a strong correlation to movements in the respective commodities to which they are exposed. Changes in value of these underlying stocks within the indices have an immediate impact on the value of the ETFs.”
The new ETFs are:
UBS-ETF Solactive Global Pure Gold Miners
Tracks the Solactive Global Pure Gold Miners Net Total Return Index which currently includes 25 international gold mining stocks. The companies each have a market capitalisation of $1 billion and all generate a minimum of 90% of their revenues from gold mining activities. Individual constituents are capped at 4.75%.
UBS-ETF Solactive Global Copper Mining
Tracks the Solactive Global Copper Mining Net Total Return Index which currently includes 27 international copper producers. The companies each have a market capitalisation of $200 million and are actively involved in the exploration and production of copper. The index methodology specifically targets companies with a high correlation to the price of copper.
UBS-ETF Solactive Global Oil Equities
Tracks the Solactive Global Oil Equities Net Total Return Index. This currently includes 25 international oil companies whose market capitalisation is at least $1 billion. The index methodology specifically targets companies with a high correlation to the price of oil, meaning companies with significant gas revenues, for example, drop out of the index.
As with exisiting UBS ETFs, the new funds are available in two unit classes: “A” class shares are aimed at financials advisers and private investors, while “I“ class shares are aimed at institutional investors looking to trade in large volumes.
|ETF name||Trading currency||TER||Ticker|
|UBS-ETF Solactive Global Pure Gold Miners (USD) A||GBp||0.60%||UC53|
|UBS-ETF Solactive Global Pure Gold Miners (USD) I||USD||0.43%||UC54|
|UBS-ETF Solactive Global Copper Mining (USD) A||GBp||0.65%||UC49|
|UBS-ETF Solactive Global Copper Mining (USD) I||USD||0.48%||UC50|
|UBS-ETF Solactive Global Oil Equities (USD) A||GBp||0.50%||UC51|
|UBS-ETF Solactive Global Oil Equities (USD) I||USD||0.33%||UC52|