LGIM has today launched the L&G Multi-Strategy Enhanced Commodities UCITS ETF, offering investors diversified exposure to the commodities futures market, as they seek to manage inflation and participate in investment opportunities across different commodities throughout the market cycle.
The Fund will seek to track the performance of the Barclays Backwardation Tilt Multi-Strategy Capped Total Return Index . The Index is comprised of all commodities in the Bloomberg Commodity Index and provides a return equivalent to a fully collateralised investment in a diversified portfolio of commodity futures across the following five commodity groups: Energy, Precious Metals, Industrial Metals, Livestock and Agriculture.
The Fund employs a multi-factor strategy, applying the following enhancements to provide optimal exposure to specific commodities by rolling the respective futures contracts dynamically:
- Seasonal strategy: applied to commodities such as Heating Oil, Gasoil and Natural Gas which have historically exhibited strong seasonality. The index shall invest into seasonal futures contracts that tend to be the most liquid contracts throughout the year and provide exposure to a commodity at key points during a production or demand cycle, where supply/demand dynamics systematically affect prices.
- Roll yield strategy: applied to the rest of the energy commodities and industrial metals in the index. For such commodities, the index shall seek to locate the position on the commodity futures curve with the most favourable implied roll yield.
- Momentum strategy: applied to agriculture and livestock commodities which have historically been strongly influenced by crop and breeding cycle, as well as exogenous factors such as weather. The index shall invest into the futures contract which has exhibited the highest historical annual outperformance over the nearby futures contract. No enhancement is applied for precious metals such as Gold and Silver.
The Fund is initially being listed on the London Stock Exchange, targeting professional investors who are evaluating the strategic role of commodity futures investments as part of a multi-asset portfolio. It builds on LGIM’s existing Commodities ETF range which includes the L&G All Commodities UCITS ETF and the L&G Longer Dated All Commodities UCITS ETF.
Howie Li, Head of ETFs at LGIM, commented: “This launch reflects LGIM’s continued commitment to active index design and is another example of innovation where investment strategies can be constructed to focus on the potential for stronger returns, rather than traditional benchmark returns. With the track record of one of our other commodities ETFs, we’ve proven that longer dated futures help with long term performance and drawdown management, by reducing the volatility caused by near-term futures investments. Through risk mitigation and a deep understanding of the return drivers in the commodities markets, we’re aiming to deliver greater value for clients. This investment strategy considers the risks and opportunities associated with the seasonality of certain commodities investments, roll yield enhancements in managing futures and the momentum effect of certain agricultural investments.”
Key product details:
|Fund name||TER||Listing exchange||Index name||ISIN||Base currency||Bloomberg code|
|L&G Multi-Strategy Enhanced Commodities UCITS ETF||0.30%||London Stock Exchange||Barclays Backwardation Tilt Multi-Strategy Capped Total Return Index||IE00BFXR6159||USD||ENCO LN|
* Backtesting was carried out on the indexes for the L&G All Commodities UCITS ETF.