Commodities | Sep 05 2006
By Greg Peel
The exchange traded fund (ETF) is rapidly becoming the new force in twenty-first century financial instruments. Funds listed in the US over gold and silver have already been responsible to a degree for pushing precious metals to recent highs. The instruments are growing in popularity amongst small investors and large managed funds alike.
The funds specifically replicate the price of a particular commodity, and represent “shares” in a physical holding of that commodity. This sets them aside from riskier futures contracts. For this reason large managed funds have become interested in direct commodity investment as never before.
With China, India and other members of the developing world pushing commodity demand to new highs, ETFs offer investors the opportunity to ride any further boom. This is a fact not lost on ETF Securities, the company which pioneered the product in Australia and Europe.
ETF Securities listed the first ever ETF – on gold, and in Australia – in 2003. This was followed by a similar product in London, and in 2005 by a Brent oil fund, and 2006 by a WTI oil fund. Rival listings in gold and silver in the US have gone off like bombs.
EFT Securities is behind 29 new listings on the London Stock Exchange. They will comprise 19 commodities and 10 commodity indices. The 19 commodities are:
Aluminium, copper, gold, nickel, silver and zinc.
Crude oil, gasoline, heating oil and natural gas.
Coffee, corn, cotton, soybean oil, soybeans, sugar and wheat.
Live hogs and live cattle.
"This has never been done before in London and people have never been given the chance to drill down and buy specific baskets and even specific commodities like this," ETF Securities chairman Graham Tuckwell told Reuters. "We are bringing commodity trading back to its traditional home in London".
Tuckwell is of the belief that commodity prices will continue to rise, otherwise EFT Securities would not have undertaken this extensive exercise. Four years ago Tuckwell believed we were entering a 10-15 year bull cycle, and nothing has yet changed his mind.