Barclays Offers New Variations of 19 Existing Commodity ETNs

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 |  Includes: BAL, BCM, BLNG, CAFE, CHOC, COW, CTNN, CUPM, DCNG, DIRT, DJP, FOIL, GAZ, GRWN, GSP, HEVY, JJA, JJC, JJE, JJG, JJM, JJN, JJP, JJS, JJU, JO, LD, LEDD, LSTK, NIB, NINI, OIL, OLEM, ONG, SBV, SGAR, SGG, WEET
by: Ron Rowland

Barclays rolled out 19 commodity-based exchange-traded notes last Thursday (4/21/11). The 18 new Pure Beta products attempt to track the same commodities as 18 existing iPath ETNs, the primary difference being the process used by each underlying index to roll future contracts. The iPath Seasonal Natural Gas ETN (NYSEARCA:DCNG) was also introduced, although it is not part of the new Pure Beta methodology.

Barclays new Pure Beta indexes intend to provide a more representative measure of commodity market returns by reducing the negative impacts of contango. Instead of rolling futures contracts on a monthly basis, they may roll into one of a number of futures contracts with varying expiration dates.

Each index will attempt to provide the best proxy for the average price return of the front-year futures contracts for each commodity in the index, while avoiding parts of the futures curve that are subject to persistent market distortions. A new Barclays’ special report, The Basics of iPath Pure Beta Commodity ETNs (pdf), provides additional information and background on the methodology.

Barclays apparently believes it has found a better way to implement commodity-based ETNs. However, they are hedging their bets by not making any changes to their existing lineup covering identical commodities. The existing “non-pure beta” ETNs will not be shut down and liquidated, nor will they be absorbed or merged into the new Pure Beta products.

The new products all have a yearly fee of 0.75% and seek returns that are potentially available through an unleveraged investment in the futures contracts in their designated markets. Following is the list of the new iPath Pure Beta Commodity ETNs along with the corresponding non-pure beta products. A description of the new iPath Seasonal Natural Gas ETN (DCNG) is included at the end.

  1. iPath Pure Beta S&P GSCI-Weighted ETN (NYSEARCA:SBV) (SBV overview) will compete with iPath S&P GSCI Total Return Index ETN (NYSEARCA:GSP).
  2. iPath Pure Beta Broad Commodity ETN (NYSEARCA:BCM) (BCM overview) will compete with iPath DJ-UBS Commodity Index Total Return ETN (NYSEARCA:DJP).
  3. iPath Pure Beta Crude Oil ETN (NYSEARCA:OLEM) (OLEM overview) will compete with iPath S&P GSCI Crude Oil Total Return ETN (NYSEARCA:OIL).
  4. iPath Pure Beta Agriculture ETN (NYSEARCA:DIRT) (DIRT overview) will compete with iPath S&P DJ-UBS Agriculture Subindex Total Return ETN (NYSEARCA:JJA).
  5. iPath Pure Beta Grains ETN (NYSEARCA:WEET) (WEET overview) will compete with iPath DJ-UBS Grains Subindex Total Return ETN (NYSEARCA:JJG).
  6. iPath Pure Beta Copper ETN (NYSEARCA:CUPM) (CUPM overview) will compete with iPath DJ-UBS Copper Subindex Total Return ETN (NYSEARCA:JJC).
  7. iPath Pure Beta Nickel ETN (NYSEARCA:NINI) (NINI overview) will compete with iPath DJ-UBS Nickel Subindex Total Return ETN (NYSEARCA:JJN).
  8. iPath Pure Beta Livestock ETN (NYSEARCA:LSTK) (LSTK overview) will compete with iPath DJ-UBS Livestock Subindex Total Return ETN (NYSEARCA:COW).
  9. iPath Pure Beta Energy ETN (NYSEARCA:ONG) (ONG overview) will compete with iPath DJ-UBS Energy Subindex Total Return ETN (NYSEARCA:JJE).
  10. iPath Pure Beta Industrial Metals ETN (NYSEARCA:HEVY) (HEVY overview) will compete with iPath DJ-UBS Industrial Metals Subindex Total Return ETN (NYSEARCA:JJM).
  11. iPath Pure Beta Sugar ETN (NYSEARCA:SGAR) (SGAR overview) will compete with iPath DJ-UBS Sugar Subindex Total Return ETN (NYSEARCA:SGG).
  12. iPath Pure Beta Softs ETN (NYSEARCA:GRWN) (GRWN overview) will compete with iPath DJ-UBS Softs Subindex Total Return ETN (NYSEARCA:JJS).
  13. iPath Pure Beta Precious Metals ETN (NYSEARCA:BLNG) (BLNG overview) will compete with iPath DJ-UBS Precious Metals Subindex Total Return ETN (NYSEARCA:JJP).
  14. iPath Pure Beta Lead ETN (NYSEARCA:LEDD) (LEDD overview) will compete with iPath DJ-UBS Lead Subindex Total Return ETN (NYSEARCA:LD).
  15. iPath Pure Beta Cotton ETN (NYSEARCA:CTNN) (CTNN overview) will compete with iPath DJ-UBS Cotton Subindex Total Return ETN (NYSEARCA:BAL).
  16. iPath Pure Beta Coffee ETN (NYSEARCA:CAFE) (CAFE overview) will compete with iPath DJ-UBS Coffee Subindex Total Return ETN (NYSEARCA:JO).
  17. iPath Pure Beta Cocoa ETN (NYSEARCA:CHOC) (CHOC overview) will compete with iPath DJ-UBS Cocoa Subindex Total Return ETN (NYSEARCA:NIB).
  18. iPath Pure Beta Aluminum ETN (NYSEARCA:FOIL) (FOIL overview) will compete with iPath DJ-UBS Aluminum Subindex Total Return ETN (NYSEARCA:JJU).
  19. iPath Seasonal Natural Gas ETN (DCNG) (DCNG overview) does not use the Pure Beta approach. Instead, it will only hold December contracts and roll them every October. It will compete with iPath DJ-UBS Natural Gas Subindex Total Return ETN (NYSEARCA:GAZ).

The competitors mentioned above are not all-inclusive. Instead, only the existing iPath ETNs corresponding to the same commodity are listed. The prospectus information for the new ETNs is spread across four different documents: 9 single commodity ETNs (pdf), 8 multi-commodity ETNs (pdf), SBV prospectus (pdf), and DCNG prospectus (pdf). Additional information is contained in the press release (pdf). The fact sheet for each ETN is provided as a link on each summary page listed above.

Disclosure covering writer, editor and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.