BNP Paribas expands suite of euro-hedged commodity ETCs

Sep 6th, 2019 | By | Category: Commodities

French banking and investments giant BNP Paribas has introduced euro-hedged share classes for a further eight of its commodity ETCs listed on Xetra.

BNP Paribas expands suite of euro-hedged commodity ETCs

BNP Paribas now offers 15 euro-hedged commodity ETCs.

The ETCs use futures contracts to provide exposure to aluminum, gas oil, gasoline, heating oil, lead, tin, zinc, and a basket of metals.

Each is linked to a ‘RICI Enhanced’ index, part of the Rogers International Commodity Index (RICI) stable of indices created by well-known commodities investor Jim Rogers.

Rolling futures contracts

By utilizing futures to obtain exposure, investors are able to avoid the storage and transportation costs associated with direct physical investment in commodities.

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 typically gain exposure via investment in the nearest dated futures contract or front-month contract. This strategy has drawbacks when markets are in contango (where the forward price of the front-month contract is trading well above the spot price) as investors can realize a negative roll return as they sell their cheaper contracts to buy more expensive ones.

RICI Enhanced methodology

Some commodity indices attempt to mitigate this issue by ‘optimizing’ their rollover 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 minimize the traditionally high compounding costs of monthly rollovers.

The RICI Enhanced indices follow the performance of futures contracts with varying maturities. They roll over their contracts twice a year, buying contracts expiring in June or December only. This removes some of the short-term risks in a futures-based index.

The eight new ETC share classes are outlined below:

BNPP RICI Enhanced Aluminum (ER) Index EUR Hedged ETC (RIEHLA GR)
BNPP RICI Enhanced Gas Oil (ER) Index EUR Hedged ETC (RIEHQS GR)
BNPP RICI Enhanced Gasoline (ER) Index EUR Hedged ETC (RIEHXB GR)
BNPP RICI Enhanced Heating Oil (ER) Index EUR Hedged ETC (RIEHHO GR)
BNPP RICI Enhanced Lead (ER) Index EUR Hedged ETC (RIEHLL GR)
BNPP RICI Enhanced Tin (ER) Index EUR Hedged ETC (RIEHLT GR)
BNPP RICI Enhanced Zinc (ER) Index EUR Hedged ETC (RIEHLX GR)
BNPP RICI Enhanced Metals (ER) Index EUR Hedged ETC (RIEHMER GR)

These new additions bring the number of euro-hedged commodity ETCs offered by BNP Paribas to 15 with the other seven products targeting exposure to nickel, copper, natural gas, WTI crude oil, Brent crude oil, and baskets of industrial metals and energy commodities.

Each ETC is also available in a euro-denominated, non-hedged share class, as well as a US dollar-denominated share class. The currency-hedged share classes come with expense ratios of 1.20%, while the unhedged share classes cost 1.00%.

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