ETF Securities' Massive Commodities ETF Launch

I don’t believe I’ve ever written about ETF Securities out of the UK, which is a shame because I’m all for the little guy getting into the market and making a name for themselves… well, I wouldn’t actually call them small as according to their site they have just over $1 billion in assets under management.

If you’ve never heard of them before, this might interest you. They’re best known for Exchange Traded Commodities (ETCs) and here’s the list of 31 ETCs (21 individual, 10 indices) to be launched on Euronext Paris:

OK, so this kind of takes the sizzle off of the recent related commodity ETF news from PowerShares but really it just allows for even finer tuning. Your scalpel just got a bit sharper. In reality, most active managers with a certain level of sophistication will know that all of the above is not really knew in terms of exposure due to instruments available in the futures markets. This really comes down to a choice of ETFs versus futures, assuming you’ve decided to play the commodity complex in a manner that warrants the use of such instruments.

The question now is whether the masses will see recent price strength over the past months (see 6-month chart below) as a buying opportunity, a shorting opportunity, or don’t know what the %&#@ is going on:

This recent article from Reuters seems to address what’s behind the increased pace of ETF development in the commodity space:

Investors are now more nervous of taking up long-only positions in the indexes, which traditionally have been the most straightforward way for pension funds, insurance companies and high net worth individuals to access commodities.

Analysts say much of the institutional money already invested in indexes is unlikely to exit in a hurry, but new money is expected to take more active approaches, which involve taking short as well as long positions.

If the commodity complex is an area where you don’t want to be “long only” because of its inherent volatility (I think this is so true), it only makes sense that ETFs and derivatives be the natural choice for investors who wish to manage the asset class actively. After the run up of the past few years, they might just have to.

Sidenote: There will come a day, hopefully soon, where we have something similar to Globex (Chicago Merc) so that investors can trade ETFs electronically, 24 hours a day, all over the globe in the same manner as derivatives are traded today. Perhaps with increased mergers between the large stock exchanges on both sides of the Atlantic, and with a couple from east Asia hopefully thrown in, this will happen sooner rather than later.