WisdomTree launches commodities ex-agriculture ETF with enhanced rolling

Jul 14th, 2021 | By | Category: Commodities

WisdomTree has expanded its commodities product range with the launch of the WisdomTree Enhanced Commodity ex-Agriculture UCITS ETF – EUR Hedged (EXAG GY) on Xetra.

Nitesh Shah Director Research WisdomTree

Nitesh Shah, Director of Research, Europe, WisdomTree.

The fund provides exposure to a broad basket of commodity futures, excluding the agriculture sector, while using an enhanced rolling mechanism to take advantage of the shape of individual commodity futures curves.

Currency exposure between the US dollar and the fund’s trading currency, the euro, is hedged on a regular basis.

The ETF tracks the Morgan Stanley RADAR ex Agriculture & Livestock Commodity Total Return Index using synthetic (or swap-based) replication.

The index consists of 15 commodities across three major commodity groups: Energy, Industrial Metals, and Precious Metals. The three commodity groups are equally weighted on a quarterly basis, and individual commodity weights within each group are determined based on liquidity and risk-return optimization analysis.

The static weights of the underlying commodities are as follows: Energy (gasoline – 10.0%, gasoil – 8.3%, Brent crude – 6.7%, WTI crude – 3.3%, heating oil – 3.3%, natural gas – 1.7%); Industrial Metals (copper – 10.0%, lead – 8.3%, nickel – 6.7%, zinc – 5.0%, aluminium – 3.3%); Precious Metals (gold – 8.3%, silver – 8.3%, platinum – 8.3%, palladium – 8.3%).

Exposure to each underlying commodity is determined by its relevant S&P GSCI Dynamic Roll Index. The S&P GSCI Dynamic Roll indices utilize flexible monthly futures contract rolling strategies in order to alleviate the negative impact of rolling into contango (where the cost of a commodity for longer-dated delivery is greater than that for shorter-dated delivery).

Generally, when the futures curve for a commodity is in a state of contango, its S&P GSCI Dynamic Roll Index will use a contract that is further out on the futures curve with the intention of minimizing the effects of negative roll yields. When the futures curve for a commodity is in a state of backwardation (where shorter-dated contracts are priced higher than longer-dated contracts), the index will use shorter-dated contracts.

The ETF has a total expense ratio of 0.35% and an annual swap rate of 0.25%. It has come to market with $300 million in assets.

According to WisdomTree, broad commodity ETPs globally have attracted over $11.1 billion net inflows year-to-date as investors seek exposure to an asset class that will be instrumental in supporting the post-Covid economic rebound and has historically provided benefits such as inflation protection and portfolio diversification.

Nitesh Shah, Director of Research, Europe, WisdomTree, said: “This year has seen a resurgence of interest in commodities. A post-Covid economic recovery, which will lean on increased infrastructure spending, is starting to take shape along with increased inflationary expectations. Commodities have historically been one of the best inflation hedges; add a supply shortage for important metals used in infrastructure projects like copper and you have an environment that could see commodities flourish. Many investors have been questioning whether we are at the start of a new commodities super-cycle. While it may be too early to tell, there are multiple tailwinds for the asset class capturing the attention of investors.”

Alexis Marinof, Head of Europe, WisdomTree, added: “Commodities are front of mind for investors due to historically having a positive correlation with inflation. Following proactive engagement with clients, we designed EXAG to meet the specific needs of investors who do not want exposure to agricultural and livestock commodities but still want an enhanced commodities strategy. By combining insights from institutional investors with our deep knowledge of commodities, we are able to deliver unique exposures which help investors navigate dynamic market conditions. As the leader in commodity ETPs, we will continue to build on our differentiated product range to help investors meet their investment goals.”

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