ETF Securities Launches Sterling-Hedged Commodities Solution For UK Investors - 14 New Exchange-Traded Commodities Listed On The London Stock Exchange

ETF Securities has on Friday 2 March launched a range of 14 new sterling-hedged Exchange Traded Commodities (ETCs) on the London Stock Exchange. The products are designed to mitigate the effects of currency volatility in the portfolios of sterling-based investors by reducing exposure to the US dollar - the currency in which most commodities are priced.

• New ETCs track the performance of the Dow Jones-UBS Commodity Index Pound Sterling Hedged Daily Total Return <http://www.djindexes.com/commodity/?go=literature> SM and its sub-indexes.
• The indexes are designed to reflect, as closely as possible, returns that would be generated if the underlying commodities were purchased in US dollars.
• Foreign exchange exposure is hedged on a daily rather than monthly basis, in order to improve tracking performance.
• A convenient, efficient solution to help mitigate unwanted currency exposure.
• Each of the 14 new products carries an MER (management expense ratio) of 0.49%.
• Supported by multiple swap counterparties and fully collateralised.

The table below illustrates how the daily hedge has provided better tracking than a monthly hedge over the period from 31 January 2007 to 31 January 2012.  It takes the Dow Jones-UBS Commodity IndexSM - expressed in US dollars - and compares it with the returns from the Dow Jones-UBS Commodity Index Pound Sterling Hedged DailySM and the Dow Jones-UBS Commodity Index Pound Sterling HedgedSM which is hedged monthly.

In short, a daily hedge can reduce slippage significantly. This is an important consideration for investors against a background of a rise in Sterling volatility seen over recent decades. It is currently sitting at around 9% p.a.[1] While volatility has declined from a peak of over 18% p.a. following the financial crisis, it remains an important determinant of asset price returns. 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.

ETF Securities' sterling-hedged ETCs are issued by ETFS Hedged Commodities Securities Limited, a Jersey-based entity specifically created to issue currency-hedged ETCs. The ETCs track the Pound Sterling Hedged Daily versions of the Dow Jones-UBS Commodity Index <http://www.djindexes.com/commodity/> SM and therefore use the same contracts and roll methodology already familiar to investors.  UBS AG and Merrill Lynch International act as counterparties.

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[1] Calculated as the 12-month average volatility of daily returns, annualised.


The 14 sterling-hedged ETCs are as follows:



Commenting, Neil Jamieson, Head of UK Sales, ETF Securities (UK) Limited, said:

"These new sterling-hedged commodity products enhance our existing range of commodity investment solutions.  There are many sterling-based investors who wish to hedge out currency risk.  Our Exchange Traded Commodities that track Dow Jones-UBS Commodity Index Pound Sterling Hedged DailySM will provide these investors with an innovative and effective solution.  The products will also appeal to those investors who actively manage currency exposure with a view to enhancing overall investment returns."