The prospectus is available through a link on this page.
BGI’s is the second true commodities ETF to hit the market in the United States. The Deutsche Bank Commodities ETF (DBC) came to market on February 3, and has already attracted over $600 million in assets. Both Deutsche Bank and BGI filed with the Securities and Exchange Commission [SEC] for the right to launch their ETFs at the same time, and it’s not clear why Deutsche Bank beat BGI to the punch. It may have something to do with the fact that DBC offers a more streamlined structure than GSG, holding just six commodities futures rather than the 24 held by GSG. More likely, the GSG application was held up because Goldman Sachs is taking a somewhat unusual approach to tracking the commodities market. Rather than simply buying the futures contracts listed in its benchmark index and rolling them over each month, Goldman Sachs will buy CERFs – long-term options traded on the CME with expirations dating out to five years – that are linked to the performance of the index. This means less day-to-day management hassle (and expense) for BGI, but it may have taken some time to convince the SEC of the liquidity and robustness of the CERF market.
In addition to the DBC ETF, BGI will be competing with the new commodities-linked “exchange-traded notes” [ETN] from its sister company, Barclays Bank. There are two of these ETNs: One tied to the Dow Jones AIG Commodities Index, and one tied to the same GSCI tracked by GSG. Our original coverage of the Goldman Sachs’ ETNs details the differences between ETNs and ETFs. Despite the differences in structure, the two products will compete in the same marketplace – in fact, BGI will market the ETNs as well as the ETF. It’s not clear how BGI will distinguish between the two products when it is marketing the funds to financial advisors.
DBC vs. GSCI
Beyond the ETN question, the big challenge facing GSG is the famous “first-mover advantage” in the ETF space. Typically, the first fund to make it to market in the ETF industry attracts the bulk of available assets. In some ways, it’s inevitable: The first fund attracts the bulk of the early volume, leading to tighter spreads on trading, which makes it more attractive to traders, leading to great volume, etc.
Working in GSG’s favor, however, is the fact that the GSCI is a very well known index in the commodities space.
Both funds will charge the same 75 basis point management fee, which in each case will be paid out of interest income earned by the fund.
The biggest difference between the two funds comes in the indexes they track. The DBC is a focused index of just six commodities, but offers a fairly balanced exposure to the commodities market. In contrast, the GSCI is more diversified (with 24 commodities), but is heavily concentrated in the energy sector:
| Energy | Precious Metals | Industrial Metals | Agriculture | Livestock
| |
|---|---|---|---|---|---|
| GSCI | 74.49% | 9.20% | 2.17% | 10.02% | 4.13%
|
| DBCI | 55.00% | 10.00% | 12.50% | 25.00% | 0.00%
|
One criticism of the Deutsche Bank index is that it has no exposure to Copper, which many people consider the metal most leveraged to the growth of the global economy. The GSCI does have exposure to copper, but only to the tune of 4.02 percent.
Editor: Here's a full, updated listing of Commodity ETFs and ETNs.
