Jefferies Has Big Plans for Growing ETF Line

by: Tom Lydon

Jefferies (NYSE:JEF) teaming up with ALPS Advisors to enter into the ETF marketplace is just the beginning of what appear to be big plans for the provider. Jefferies is a major global securities and investment banking group in the United States, Europe and Asia. It says a lot about the fast growth and popularity of the ETF industry, then, that the nearly 50-year-old firm decided to throw its hat in the ring with a focus on commodity ETFs.

ALPS Advisors and Jefferies kicked things off in September with the first ETF, with a twist: instead of holding futures or physical commodities, the fund holds equities:

  • Jefferies|TR/J CRB Global Commodity Equity Index Fund (NYSEArca: CRBQ)

Satch Chada, Jefferies’ Managing Director and Head of the Investor Solutions Group, says that “The introduction of these ETFs is notable on a number of levels. Not only is it the first investable equity product for the CRB, it’s also the first in a series of commodity-related funds based on these new equity indices, and the first ETF under the Jefferies brand”

Immediately following the launch of the first ETF, on October 27, 2009, ALPS and Jefferies launched

  • Jefferies|TR/J CRB Global Industrial Metals Equity Index Fund (NYSEArca: CRBI)
  • Jefferies|TR/J CRB Global Agriculture Equity Index Fund (NYSEArca: CRBA)

CRBI tracks companies that produce and distribute metals such as copper, aluminum, iron ore and steel. CRBA tracks producers of fertilizers, farming equipment, irrigation, agricultural products, livestock and aquaculture.

For each of these ETFs, Jefferies acts as a brand licensor for the enterprise, and ALPS Advisors acts as the ETF adviser. According to SEC filings, ALPSin pipeline are several more funds:

  • Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF, which will focus on small-cap companies that derive most of their revenues from the exploration and production of energy products, including natural gas
  • Jefferies | TR/J CRB Global Precious Metals Equity Index Fund
  • Jefferies | TR/J CRB Global Energy Equity Index Fund
  • Jefferies | TR/J CRB Natural Gas Equity ETF

Currently, CRBQ is the provider’s broadest fund, which tracks an index composed of companies involved in the production and distribution of commodities and commodity-related products and services in the agriculture, base/industrial metals, energy and precious metals sectors. The annual expense ratio is 0.65%.

Three particular benefits of investing in commodity equity ETFs are:

  • Investors benefit from the knowledge that a commodity producer brings to the table; no expertise on the investor’s part is required
  • Commodity ETFs that hold futures or physical commodities can trigger K-1s at tax time
  • Commodity equity ETFs won’t be subject to any Commodity Futures Trading Commission (CFTC) position limits that are handed down

Commodity investing in general has been gathering interest on the back of a weakening dollar, fears of inflation and potential supply constraints down the line as the world’s population continues to expand.

In the future, Jefferies wants to expand beyond commodities. “We are seeking to expand our line-up,” Chada says. “We’re committed to providing institutional-quality investment products and themes for individual investors.”

Jefferies expanded into ETFs because, in Chada’s words, “ETFs offer important benefits, including transparency, liquidity and low-costs, and have quickly become the platform of choice for many institutional and individual investors alike” The ETF industry has ballooned to a record $751 billion in assets as of Nov. 30, so it’s no surprise that more and more established financial industry players want to get in on the action.