London, 16 March 2012

ETF Securities, one of Europe’s leading providers of exchange-traded products, has launched a range of ten new euro-hedged exchange-traded commodities (ETCs) on Xetra. The products are designed to mitigate the effects of currency volatility in the portfolios of euro-based investors by reducing exposure to the US dollar – the currency in which most commodities are priced. The ETC provider also listed two new Brent Crude products on Xetra – ETFS Brent Crude and ETFS Forward Brent Crude – in recognition of Brent’s growing importance as the new global benchmark for oil.

During its annual investment conference held earlier this year, ETF Securities asked delegates in London, Frankfurt, Milan and Zurich to consider how various scenarios might impact their asset allocation decisions. Three quarters of respondents to the poll said they expected tensions in the Middle East to escalate and two thirds believed this would occur within the first half of the year. Similarly, three quarters of respondents anticipated a disorderly European sovereign default and a subsequent slowdown in growth, with nearly half expecting this to occur before mid-year. Perhaps unsurprisingly, the vast majority of respondents said this would have an impact on their asset allocation decisions.

“Our recent poll suggests that European investors are understandably concerned about how to position themselves in light of the Eurozone debt crisis and continued unrest in the Middle East. There are many euro-based investors who wish to hedge out currency risk, for example, and the new daily-hedged ETCs provide an innovative and effective solution.  The new products will also appeal to investors who actively manage currency exposure with a view to enhancing overall investment returns”, says Isabel Moessler, Co-Head European Sales at ETF Securities (UK) Limited. “Meanwhile, Brent Crude has emerged as the reference benchmark for crude oil and is therefore potentially sensitive to developments that could impact international oil supplies. ETF Securities provides investors with a range of solutions to take exposure to crude oil and energy more generally. These now include the ability to take long-only and forward exposure to the movement of the underlying Brent index.”

Currency-hedged commodities

Threats to the fragile global recovery like the Eurozone debt crisis have the potential to reignite currency volatility, in turn causing greater uncertainty for portfolio returns.

The new currency-hedged ETCs track the performance of the Dow Jones-UBS Commodity Index Euro Hedged Daily Total Return and its sub-indexes via fully funded collateralised swaps and provide a convenient, efficient solution to help mitigate unwanted currency exposure. Foreign exchange exposure is hedged on a daily rather than monthly basis, in order to improve tracking performance.

The underlying indexes are designed to reflect, as closely as possible, returns that would be generated if the underlying commodities were purchased in US dollars.

ETF Securities’ euro-hedged ETCs are issued by ETFS Hedged Commodity Securities Limited, a Jersey-based entity specifically created to issue currency-hedged ETCs. The ETCs track the Euro Hedged Daily Total Return versions of the Dow Jones-UBS Commodity Index and therefore use the same contracts and roll methodology that may already be familiar to investors.

Brent Crude exposure

Brent crude is increasingly seen as the global benchmark for crude oil, particularly as West Texas Intermediate has been beset with local logistical issues that have seen it move to a significant discount compared to Brent. The increased importance of Brent Crude as a global benchmark was also reflected in the 2012 annual rebalancing of the Dow Jones-UBS Commodity IndexSM; Brent Crude now accounts for a third of the index’s oil weighting.

The new Brent Crude oil ETCs track the performance of the Brent Crude sub-indexes of the Dow Jones-UBS Commodity IndexSM via fully funded collateralised swaps and provide investors with the ability to invest in different positions along the oil futures curve.

“The front part of the Brent curve reacted more strongly over the ‘Arab Spring’ period compared with longer-dated futures. With front month Brent futures having outperformed Brent 1yr futures by around five percentage points and 2yr futures by around 10 percentage points, the front-end of the oil curve gave more exposure to the Middle-East event risk driven spike in oil prices”, explains Martin Arnold, Senior Analyst at ETF Securities (UK) Limited, in a recent research note. “Despite near-term volatility, long-term structural factors appear to remain supportive of oil prices. The continued industrialisation and increasing wealth of large population developing economies such as China and India have been supporting long-term oil demand. Supply remains constrained and is increasingly difficult to access, which has been pushing prices higher.”

New products at a glance

Exposures are obtained via multiple swap counterparties: UBS AG, London branch and Bank of America Merrill Lynch acting either through Merrill Lynch Commodities Inc or Merrill Lynch International. Each of the 12 new products carries an MER (management expense ratio) of 0.49%.

Ends —

To learn more about ETF Securities go to: www.etfsecurities.com