ETF Securities to launch 6 new oil ETCs providing investors with access to different parts of oil futures curve

ETCs accumulate more than $1 billion in assets with $200 Million linked to oil Global pioneer in exchange traded commodities, ETF Securities (ETFS), will deliver another world first by listing six new oil Exchange Traded Commodities (ETCs) on the London Stock Exchange offering investors, for the first time ever, the opportunity to gain direct and simple exposure to one, two and three year oil futures prices in Brent and WTI oil benchmarks.

ETFS Brent Oil was first listed on the London Stock Exchange in July 2005 and ETFS WTI Oil was listed in May 2006. Since then, Oil ETCs have accumulated over $200 million in assets and are listed on five European stock exchanges including London Stock Exchange, Deutsche Borse, Euronext Paris, Euronext Amsterdam and Borsa Italiana. Trading volumes in these two oil ETCs now total $100 million each month. Due to their popularity, [7] leading investment banks have signed up as Authorised Participants in Oil Securities.

Substantial demand from investors for more choice to different parts of the oil futures curve has led ETF Securities to create these new products, allowing investors to implement different investment strategies in oil. The demand for new oil ETCs is a result of significant investor interest in commodities and increased knowledge about commodities investing. As a result of this interest, ETF Securities has taken in $1 billion of new assets in the past 9 months across the full commodity offering.

The six new ETCs to be listed are:
LSE Code
ETFS Brent 1yr OSL1
ETFS Brent 2yr OSL2
ETFS Brent 3yr OSL3
ETFS WTI 1yr OSW1
ETFS WTI 2yr OSW2
ETFS WTI 3yr OSW3

The two existing ETCs are:
ETFS Brent OILB
ETFS WTI OILW

Demand for these new ETCs is also being driven by investors searching for a means to expose their portfolio to the benefits of backwardation* which can provide a source of return in addition to the oil price return. Due to the dynamic nature of backwardation and contango, investors wish to be able to track different oil futures dependent on this feature.

ETCs are priced off ICE Futures Brent and NYMEXs WTI oil futures, and the return of ETCs is thus influenced by the shape of the oil future curve. With a total of eight oil ETCs available (6 new ones and 2 existing ones), investors now have the choice of gaining exposure to a range of four different maturities with varying rates of backwardation or contango. Historical simulations show that the performance of each of the four different maturities varies considerably in the short term but is similar over the long term. The ETCs with exposure to the longest maturity had the lowest volatility.

The listing of the 6 new oil ETCs in the London Stock Exchanges dedicated ETC segment is expected to occur within the next few weeks.

Commenting on launching another world first, Graham Tuckwell, Chairman of ETF Securities, said: ETCs have now been available in Europe since December 2003 and their simplicity and structure have now been embraced by the market. Many investors have approached us showing an appetite for a range of oil ETCs. Increased investor demand and knowledge has resulted in investors wanting access to more sophisticated trading and investment strategies.

Our six new oil ETCs are a simple and direct answer to fulfil a demand that currently no one else is able to. Currently most investors cannot invest in oil futures due to limited market access and lack of liquidity in pricing, but our response to this problem in the form of an ETC creates a practical and accessible answer for investors.

Overall there has been a huge surge in global demand for ETCs and we recently passed the landmark of US $1 billion invested in our existing offering of 36 different ETCs. With listings on five of Europes major exchanges and a new total of 42 ETCs, ETF Securities has successfully delivered simple, cost-efficient and accessible products for all investors.

Adding to this David Shrimpton, Head of Product Management and Development at the London Stock Exchange, said: I am delighted to welcome these new long-dated oil ETCs to our market. Through our Exchange Traded Commodities market investors can gain exposure to commodities without the need to access the futures market. Since its launch last September the market has seen over £3.2 billion worth of trading, demonstrating that investors are embracing the opportunity to use these simple commodity products for portfolio diversification.

These listings follow ETF Securities pioneering world first listings of ETCs based on a range of underlyings – oil futures, DJ-AIG Commodity Indices and physical precious metals including platinum and palladium. As a result, Exchange Traded Commodity segments have been created on Europes major stock exchanges.

ETCs are relatively new investment tools which enable investors to gain exposure to commodity prices without trading futures or taking physical delivery. The ETCs are designed to offer investors a simple, cost-efficient and secure way to access the commodities market. They provide investors with a return equivalent to movements in their spot price (or futures prices in the case of the new ETCs) less a small management fee which accrues daily.

* Backwardation and contango definitions:
Backwardation refers to a downward sloping forward curve (as in an inverted yield curve) or, more formally, it is the situation where, and the amount by which, the price of a commodity for future delivery is lower than the spot price, or a far future delivery price lower than a nearer future delivery.

Contango is the opposite to backwardation and refers to an upward sloping forward curve (as in the normal yield curve) in prices or, more formally, it is the situation where, and the amount by which, the price of a commodity for future delivery is higher than the spot price, or a far future delivery price higher than a nearer future delivery.