BNP Paribas has unveiled six new exchange-traded commodities, each tracking the price performance of industrial metal futures contracts, on Deutsche Börse’s Xetra and Frankfurt exchanges.
The six BNP Paribas ETCs enable investors to participate in the performance of aluminium, lead, copper, nickel, zinc and tin.
The ETCs enable investors to participate in the performance of aluminium, lead, copper, nickel, zinc and tin.
By utilising futures-based exposure, investors are able to avoid the storage and transportation costs associated with direct physical investment in commodities.
The strategy does have its drawbacks, however.
The limited maturity of the futures contracts requires that soon-to-expire contracts be sold and the proceeds reinvested into futures contracts with an expiry date further in the future. This process is known as rolling over the contract.
Traditional passive investments tracking commodity indices gain exposure via investment in the nearest dated futures contract or front month contract. This strategy has recently shown its limits with steep contango curves (where the forward price of the front month contract is trading well above the spot price). This forces investors to suffer a significant negative roll return as they sell their cheaper contracts to buy more expensive ones.
Increasingly, a growing number of commodity ETPs are attempting to navigate this issue by ‘optimising’ their roll strategy. One such method of doing this is to invest further down the curve, in longer dated contracts where the contango effect is usually less pronounced – the curve is flatter and hence the roll returns less negative over time. By rolling the contracts over less frequently, these strategies minimise the traditionally high compounding costs of monthly rollovers.
The newly launched ETCs track ‘enhanced’ indices from the Rogers International Commodity Index (RICI) family, which diversify their exposure across futures contracts with varying maturities. Contracts expiring in March, June, September and December are selected for the index. A rollover thus takes place only four times per year. The indices are denominated in US dollars.
The list of newly launched ETCs is outlined below:
BNPP RICI Aluminium (TR) Enhanced ETC (BNQN)
BNPP RICI Lead (TR) Enhanced ETC (BNQT)
BNPP RICI Copper (TR) Enhanced ETC (BNQP)
BNPP RICI Nickel (TR) Enhanced ETC (BNQQ)
BNPP RICI Zinc (TR) Enhanced ETC (BNQR)
BNPP RICI Tin (TR) Enhanced ETC (BNQS)
Each ETC has a total expense ratio of 0.99%.
BNP Paribas recently rolled out ETCs targeting exposure to the price performance of energy commodity futures contracts. These include the:
BNPP RICI Gasoline Enhanced ETC (BNQG)
BNPP RICI Diesel Enhanced ETC (BNQF)
BNPP RICI Heating Oil Enhanced ETC (BNQH)
BNPP RICI Natural Gas Enhanced ETC (BNQE)
BNPP RICI WTI Oil Enhanced ETC (BNQD)
BNPP RICI Brent Crude Enhanced ETC (BNQC)