UBS has launched the UBS Bloomberg Commodity CMCI SF (hd to CHF) ETF on the SIX Swiss Exchange, providing currency-hedged exposure to a broad basket of commodity futures.
The UBS Bloomberg Commodity CMCI UCITS ETF provides exposure to a broad commodity basket while utilising an advanced rolling methodology.
The fund synthetically replicates the performance of the UBS Bloomberg Constant Maturity Commodity Index. The index combines the constituent commodity weights of the Bloomberg Commodities 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 Commodity Index has more than $60 billion in broad commodity tracking assets directly linked to its performance and is the most widely followed benchmark used by institutional investors for diversified commodity investments.
It is well diversified with exposure to over 20 commodities and contains components in the agriculture, energy, industrial metals, precious metals and livestock sectors.
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 gold (12.4%), corn (7.9%), copper (7.9%), natural gas (7.6%) and Brent crude oil (7.2%).
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. It has a strong track record over the past ten years, with rolling performance exceeding the roll yield on the Bloomberg Commodities Index by an average of 3.6% per annum since inception.
The fund trades in Swiss francs and hedges the exposure of the underlying US dollar-denominated commodity futures back into Swiss francs.
It trades on SIX with the ticker BCCMS and has a total expense ratio (TER) of 0.37%.