Gold bugs and commodity bulls will be delighted at the return of two long-established commodity ETFs – the Market Access NYSE Arca Gold BUGS Index UCITS ETF (GOLB LN) and the Market Access Rogers International Commodity Index UCITS ETF (RICI LN) – to the London Stock Exchange.
China Post Global has relisted its flagship commodity ETFs on the London Stock Exchange.
The funds deliver exposure to gold mining stocks and commodities futures respectively, and once held close to a billion dollars in assets under management at a time when ETF industry assets were a fraction of what they are now.
The ETFs’ original LSE listings were cancelled by China Post Global, owing to reduced trading volumes, in 2016 when it acquired ownership of Market Access ETFs. The funds retained their Xetra and SIX Swiss Exchange listings.
But with gold poised to benefit from further risk-off portfolio allocation shifts and investors increasingly concerned at the prospect of markedly higher inflation (a positive indicator for hard assets), the two funds are ripe for a return to the important London market.
Danny Dolan, Managing Director of China Post Global, said, “We are very pleased to be listing our flagship commodity ETFs on London Stock Exchange, in response to strong demand from UK investors for commodity and gold exposure.
“Interest in gold and commodities has increased sharply since the COVID-19 pandemic began. Investors are seeking a safe haven in gold, and an inflation hedge in broad commodity indices after huge quantitative easing measures.”
[pullquote]“Interest in gold and commodities has increased sharply since the COVID-19 pandemic began.
“Investors are seeking a safe haven in gold, and an inflation hedge in broad commodity indices after huge quantitative easing measures.”
– Danny Dolan, Managing Director, China Post Global.[/pullquote]Gold bugs
The Market Access NYSE Arca Gold BUGS Index UCITS ETF comes with a TER of 0.65% and is Europe’s longest-established gold mining ETF, having debuted in 2007. The fund tracks the NYSE Arca Gold BUGS Index, which aims to provide significant exposure to near-term movements in gold prices.
The index achieves this by only including gold miners that do not hedge (BUGS stands for Basket of Unhedged Gold Stocks) their gold production beyond 18 months. By hedging over shorter tenors, the underlying gold miners are faster to participate in a rising gold price. And to ensure pure-play exposure to gold, the index homes in on companies that earn the majority of their revenues specifically from gold-mining activities. Companies with a more diversified metal exposure or a greater exposure to silver mining are excluded.
To be eligible for inclusion, companies must also be listed on one of the major US exchanges and have a market capitalisation of at least $75m.
The index is constructed with a modified equal-weighting approach. The top two companies, as ranked by full market capitalization, are attributed a weighting of 15% each at rebalance; the company with the third-largest market capitalization is assigned a weighting of 10%; the remaining companies in the index are equal-weighted into the remaining 60% of the index weight. The index currently has 21 holdings (the largest being Newmont Corp and Barrick Gold Corp) and is reconstituted and rebalanced quarterly.
Owing to the inherent operational gearing of the underlying firms, the index has shown an ability to provide leveraged exposure to the gold price during bull market periods for gold. For example, in 2019 the index rose 47.3% in USD terms, compared to the spot gold price which rose 17.9%.
Broad commodities
The Market Access Rogers International Commodity Index ETF comes with a total expense ratio of 0.60% and is the longest-established commodity ETF in Europe, have debuted in 2006. It tracks the Rogers International Commodity Index (RICI).
The RICI, which was created by distinguished commodity investor Jim Rogers, is highly diversified, reflecting the performance of a broad basket of commodities futures (front-month contracts) reflecting commodities consumed in the global economy. This ranges from energy to metals to agriculture and softs. The index is global in its outlook and breadth, providing exposure to commodities that are often overlooked by other indices, such as rice and rubber.
The index’s weights attempt to balance consumption patterns worldwide, across both developed and emerging market economies, and specific contract liquidity. Major constituents include Crude Oil (15%), Brent Oil (13%), Natural Gas (6%), Gold (5%) and Corn (4.75%). Smaller constituents include commodities such as Soybean Meal (0.75%), Orange Juice (0.60%), Oats (0.50%), Palladium (0.30%) and Milk (0.20%). In total, 38 different commodities are represented in the index.
The index has outperformed its mainstream rivals over the past decade, including the Bloomberg Commodity Index, the S&P GSCI and the Thomson Reuters/CoreCommodity CRB Commodity Index, all of which are tracked by ETFs.
The new LSE listings trade in sterling and, in addition to the UK, the funds are registered in Austria, Germany, Italy, Netherlands, Luxembourg, and Switzerland. The funds are available to trade in euros on Xetra and in US dollars on SIX Swiss Exchange.
The funds, which are synthetically replicated, currently have assets under management of $98 million (GOLB) and $44m (RICI).
Goldenberg Hehmeyer acts as market maker. Barclays is the swap counterparty.