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Update: UBS ETFs plc – CMCI Composite SF UCITS ETF

Energie- und Agrar-Futures machen den Grossteil dieses Rohstoffkorbes aus. Langjährige Diversifikationsvorteile und auch die tiefen Zinsen relativieren allerdings die traditionellen Vorteile von Rohstoff-Investments.

Kenneth Lamont 24.04.2015

Rolle im Portfolio

The UBS CMCI Composite SF UCITS ETF provides investors with investors with broad-basket futures-based commodity exposure.

Due to the volatile nature of commodities as an asset class, this ETF is best deployed as a satellite or small core-holding within a diversified portfolio.

Given its broad-basket exposure, this ETF offers the advantage of diversification within the commodity asset class. That said, investors should take note that due to its weighting methodology, the energy and agriculture sectors combined account for 60% to 65% of the total exposure gained through the reference index.

Broad basket exposure to commodities has traditionally been considered an excellent source of portfolio diversification, exhibiting low correlations with bonds and stocks. In line with modern portfolio theory, adding this exposure to a stock and bond portfolio has historically produced lower volatility and increased risk-adjusted returns. That said, recent years have seen a notable increase in correlations with the major equity and bond markets, which peaked in the face of the market turmoil in 2008.

Though their portfolio diversification benefits are increasingly questionable, depending on their exposure to the energy sector, commodity broad baskets may be utilised as a portfolio hedge against rises in unexpected inflation within Europe.

With the underlying index reflecting the return on commodity futures contracts, it is important to understand the risks associated with the futures market, and not least the phenomenon of contango. Contango occurs when a commodity's futures price is higher than its expected spot price. In this scenario, even if the spot price of a commodity is rising, investors could lose money. That said, since not all commodity markets experience contango at once, investing in this broad-based fund could be a good way to mitigate the contango effect. Additionally, this fund attempts to mitigate the impact of the harmful changes in the futures curve by holding contracts across the full maturity spectrum of the futures curve.

Fundamentale Analyse

In recent years, the diversification and inflation hedging benefits historically attributed to commodities have been called into question. Beginning in 2005, commodities’ correlations with traditional assets began to rise before peaking in the market turmoil of 2008. It remains to be seen whether correlations will drop back towards their long term averages, or whether we have entered a ‘new economic normal’ under which old relationships no longer hold. Conventional investment wisdom also dictates that commodities provide a protection against unexpected inflation. While this benefit has been substantiated academically in the United States, a recent study has shown that energy commodities provide the most effective hedge against unexpected inflation in Europe.

Energy commodities comprise around a third of the reference index. Natural gas is primarily used to fuel power-generating plants, industrial complexes, and households. The recent widespread adoption of ‘fracking’ technology and the development of vast shale natural gas reserves in the US has increased supply and exerted downward pressure on prices.

The price of Brent crude oil is considered to be the primary indicator of supply and demand in the global crude oil market and tends to be driven by global economic activity, OPEC actions, and geopolitical events. Prices have tumbled since the summer of 2014, in the face of increased supply from US shale producers and slowing demand. But the long-term trend for Brent should remain positive, as it is a finite resource, has no immediate substitutes and is fundamental to the functioning of the global economy.

Long-term demand for agricultural commodities is driven by fundamental factors such as population growth and the production of bio-fuels. The World Bank estimates the global population will increase by approximately 2 billion from current levels to 8.9 billion by 2050, which ceteris paribus (all else held equal) would drive an increase in global demand for agricultural commodities. In addition to food and livestock feed, corn and soybeans are used in the production of biofuels.

Indexkonstruktion

The UBS-Bloomberg CMCI Composite index is comprised of futures contracts traded on 27 commodities across five sectors, which have been selected for their economic significance and liquidity. The index offers a unique take on traditional broad commodity futures exposure. Typically, traditional commodity futures indices track front-month futures contracts, which make these indices especially susceptible to losses in the face of changes in the slope of its component commodities’ futures curves. Depending on the slope of the futures curve, the return of a long futures investment will be impacted by the roll yield generated when contracts are sold and repurchased. Instead of holding front-month contracts only and rolling every month, the CMCI Composite is diversified across a range of liquid maturities for each commodity and rolls daily to achieve a constant maturity. The index can hold up to five maturities for a given commodity; 3m, 6m, 1y, 2y, and 3y. The index is reconstituted semi-annually. The index’s weightings are based on production information and liquidity, which are weighted using a 2:1 ratio respectively. The index maintains sector exposure to energy (~36%), agriculture (~28%), industrial metals (~24%), precious metals (~6%), and livestock (~4%). At the time of writing, brent crude oil and copper are the largest single components of the index, each maintaining around 9%, with light crude oil and soybeans next largest, each contributing 8% and 6% respectively.

Fondskonstruktion

The ETF uses synthetic replication to provide exposure to the underlying benchmark, combining unfunded and funded swap structures in a ratio that can change over time. As of April 2015, the fund held a portfolio of assets accounting for 77% of the fund’s net asset value and a fully-funded swap for the remaining 23%. UBS provides full transparency on the portfolio assets and the collateral backing the funded swap. At the time of writing, the portfolio assets consist of European and Japanese blue chip equities from a diverse set of industries. Collateral consists entirely of bonds, ~40% of which ~75% are government bonds and the other ~25% supranational bonds such as those issued by the European Central Bank and the European Bank for Reconstruction and Development. The exposure to counterparty UBS AG is monitored daily by the collateral manager, Lantern, the portfolio manager and the fund’s custodian, State Street Bank. UBS aims to maintain all swap counterparty exposures collateralised at 105% at the end of each business day. Collateral is held via transfer of title in a segregated account with the fund’s custodian State Street Bank. Under the terms of the swaps, counterparty UBS AG agrees to provide the fund with exposure to the total return of the underlying index, net of any associated taxes, costs, or fees. The fund does not engage in securities lending.

Gebühren

For this ETF UBS charges a TER of 0.45% which is comparatively high for broad-basket commodity exposure. For its synthetic ETFs, UBS also produces what it calls the “drag level” for each fund alongside the total expense ratio (TER. The “drag level” is a full tally of any fees or expenses charged to the fund over a 12-month period, including management fees and swap costs. Drag levels for each fund are reviewed by UBS on an annual basis, and may be changed once a year, but once set they will remain the same for the entire 12-month period. Additional costs potentially borne by the ETF holder but not included in the drag level include bid-ask spreads on the ETF and brokerage fees when buy and sell orders are placed for ETF shares. For this ETF, UBS lists a "drag level" of 1.05%.

Alternativen

Investors have no shortage of choice when it comes to broad-basket commodity futures ETPs. In considering different products, an investor should look at the construction of the underlying indices, and specifically the differences in sector exposure and rolling methodology.

Currently, the most popular broad-basket commodities ETF, as measured by assets under management, is the Lyxor Commodities CRB TR ETF. This ETF tracks an index which weighs the commodities by their perceived economic significance, trading frequency, and historical return contribution to the commodities space. The estimated holding cost for this fund is 0.65% (TER of 0.35% + swap cost of 0.30%).

Investors looking for broad exposure to commodities excluding energy could consider the Lyxor Commodities Thomson Reuters/Jefferies CRB Ex-Energy ETF. The underlying index uses the same methodology as the Thomson Reuters/Jeffries CRB index but excludes all energy commodities. The ETF charges a TER of 0.35%.

UBS also offers this ETF in multiple currency denominations – USD, EUR-hedged, and CHF-hedged – for those wishing to assume or eliminate currency risk from their investment.

 

Über den Autor

Kenneth Lamont  ist Fondsanalyst bei Morningstar.