ETF Securities has launched the first physically-backed industrial metals ETCs. The new funds, which will cover six metals, will trade on the London Stock Exchange.
The six metals are copper, nickel, tin, aluminium, lead and zinc. The group is also launching an ETF on a basket of all six metals in the New Year.
Previous industrial metals ETFs have been swap-based. Derivative-based ETFs track the market more closely, but only have one counterparty (the investment bank) and are therefore subject to greater counterparty risk. In the post-credit crunch environment, physically-based ETFs have been seen as more transparent.
The Industrial Metal ETCs have been constructed in line with the pricing and delivery rules of the London Metal Exchange (LME). For example, the underlying metal will be stored in warehouses approved and audited by the LME.
Graham Tuckwell, Chairman of ETF Securities Limited, said that these products give investors, for the first time, direct access to the physical metals market. He believes there should be strong demand:
“Investors are increasingly looking at hard assets as a way to hedge against growing concerns about sovereign risk, currency debasement and potential inflation,” he said. “They are also looking at ways to tap into the rapidly rising commodity demand by China and other emerging market economies.”
Source: 08 December 2010 by Cherry Reynard Portfolio Adviser