VanEck unveils ‘Constant Maturity’ broad commodities ETF

Aug 25th, 2023 | By | Category: Commodities

VanEck has launched a new ETF in the US offering access to a diversified basket of commodity futures with an advanced rolling methodology.

Ed Lopez, Managing Director, Head of ETF Product for VanEck

Ed Lopez, Head of Product Management for VanEck.

The VanEck CMCI Commodity Strategy ETF (CMCI US) has been listed on Cboe BZX Exchange with an expense ratio of 0.65%.

The fund is linked to the UBS Constant Maturity Commodity Index (CMCI) which has been designed to address two drawbacks traditionally associated with commodities investing: concentration in individual commodities or sectors and the deteriorating effects of rolling futures contracts when markets are in contango.

The index consists of 28 commodities from across the energy, precious metals, industrial metals, agriculture, and livestock sectors. Individual commodities are assigned target weights, updated annually, according to their economic significance and market liquidity.

The target weights for the CMCI’s five commodity sectors in 2023 are energy (31.9%), precious metals (6.7%), industrial metals (25.9%), agriculture (30.9%), and livestock (4.5%). The largest single-commodity positions are Brent Crude Oil (9.4%), WTI Crude Oil (8.7%), LME Copper (8.2%), LME Aluminum (7.1%), and Soybeans (6.1%).

Notably, compared to traditional broad commodity indices, the CMCI also introduces a time element that aims to minimize the negative roll yield often associated with front-month commodity indices. Specifically, the index diversifies across contract tenors ranging from three months up to a maximum of three years, weighting contract tenors across the curve in accordance with a 75% liquidity and 25% equal weighting rule.

Roland Morris, Portfolio Manager for VanEck’s Commodity Index Strategy, said: “Commodities have historically played a range of important roles in investor portfolios, acting as a hedge against inflation and a source of uncorrelated returns. However, traditional or ‘first-generation’ commodity indices typically only trade short-dated futures contracts which can significantly hinder returns, particularly when commodity markets are in contango. Through a next-generation, constant maturity approach, investors can minimize exposure to the front-end of the futures curve with less concentration risk and lower volatility.”

Ed Lopez, Head of Product Management for VanEck, added: “The CMCI ETF is a powerful addition to the toolkit of investors and advisors looking to enhance commodities exposure in their portfolios, while also mitigating some of the most serious drawbacks that have plagued first-generation commodity indices since their start. We’re very pleased to be providing access to this approach in an ETF wrapper and look forward to continuing to educate the marketplace about the benefits of the constant maturity approach to commodity investing.”

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