WisdomTree adds currency hedging to smart beta commodity ETF

Aug 21st, 2018 | By | Category: Commodities

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WisdomTree has introduced a new currency-hedged share classes for its WisdomTree Enhanced Commodity UCITS ETF.

WisdomTree brings currency hedging to its smart beta broad commodity ETF

The new share classes mitigate currency risk between the US dollar-denominated futures contracts and the euro or pound sterling.

The new share classes help to mitigate currency risk between the US dollar-denominated futures contracts and the euro or pound sterling.

The new GBP-hedged share class has been listed on London Stock Exchange under the ticker WCOM LN, while the EUR-hedged share class is available on Xetra (Ticker: WTEH GY) and Borsa Italiana (WCOE IM).

The unhedged version of the ETF trades on LSE in pound sterling (WCOB LN) and US dollars (WCOA LN), and is also listed in euros on Xetra (WTIC GY) and Borsa Italiana (WCOA IM).

Initially launched in May 2016, the smart beta commodity ETF features a mechanism that helps reduce the cost of holding commodity future contracts, meaning investors can hold the ETF in their portfolios for longer.

The fund tracks the Optimised Roll Commodity Total Return Index, a broadly diversified index with weightings based on the widely followed Bloomberg Commodity Index.

Christopher Gannatti, Head of Research for WisdomTree in Europe, said, “We are seeing greater demand from investors for broad exposure to this asset class as understanding of its uncorrelated risk contribution has increased. Commodities tend to have a positive correlation with inflation which may be attractive in today’s environment of interest rate increases and suitably diversified broad commodity exposure can help to mitigate specific risks associated with single commodities.”

The Optimised Roll Commodity Total Return index consists of 22 commodities with current sector exposures of 35.3% in agriculture, 34.1% in energy, 16.0% in industrial metals and 14.6% in precious metals.

The index also incorporates a smart roll mechanism, based on the S&P GSCI Dynamic Roll indices, which looks to mitigate negative roll yield.

Commodity futures contracts trade either in contango, where forward month futures contracts cost more than the current month (leading to negative roll yield), or in backwardation, where forward month futures contracts trade at a discount to the current month (leading to positive roll yield). It is usually the supply/demand factor that determines whether the commodity is in contango or backwardation.

The index’s rules-based dynamic approach to rolling futures contracts aims to minimize contango and maximise backwardation.

The fund gets its commodities exposure through an unfunded total return swap. It invests in and physically holds US T-bills and any swap exposure is over-collateralised and reset on a monthly basis.

Both the hedged and unhedged share classes of the fund come with total expense ratios (TERs) of 0.35%. The ETF has accumulated approximately $120 million in assets under management across the entire fund.

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