UBS has launched the UBS CMCI Ex-Agriculture SF UCITS hedged to EUR ETF (UIQ1) on Deutsche Börse’s Xetra and Frankfurt exchanges, offering currency hedged exposure to a broad basket of commodity futures contracts, excluding those tracking soft (agricultural) commodities.
The UBS CMCI Ex-Agriculture SF UCITS hedged to EUR ETF is available on Deutsche Börse and SIX Swiss Exchange.
The fund synthetically tracks the UBS Bloomberg CMCI Ex-Agriculture Ex-Livestock Capped Index. The index combines the constituent commodity weights of the Bloomberg Commodities Ex-Agriculture Ex-Livestock Index with the rolling technique of the UBS Constant Maturity Commodity Index family of indices which UBS proposes is more effective in mitigating the effects of negative roll yield.
The Bloomberg Commodities Ex-Agriculture Ex-Livestock Index is well diversified with exposure to over 14 commodities across three commodities sectors: industrial metals (45.8%), energy (43.7%) and precious metals (10.5%) (Data as of the end of June 2017).
The index caps (max 15%) and floors (min 2%) the exposure of any one commodity in the index, resulting in a more balanced index weighting. The commodities with the largest current exposures are aluminium (13.3%), copper (12.9%), Brent crude oil (11.0%), light crude oil (10.1%) and gold (8.4%).
By utilising futures to obtain commodity exposure, investors are able to avoid the storage and transportation costs associated with direct physical investment in a commodity.
The limited maturity of 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). Investors may realise a negative roll return as they sell their cheaper contracts to buy more expensive ones.
The UBS Constant Maturity Commodity Index attempts to navigate this issue by implementing a daily rolling mechanism, which uses up to five different tenor points across different commodity futures curves.
The fund trades in euros and hedges the exposure of the underlying US dollar-denominated commodity futures back into euros.
It has a total expense ratio (TER) of 0.37% and is also available on SIX Swiss Exchange.