Exchange traded commodities: good news for retail investors

MoneyWeek has regularly highlighted the potential in commodities. Now a range of exchange traded commodities are coming to help investors get in on the action.

MoneyWeek has regularly highlighted the potential in commodities over the past five years ever since the bear run of the 1990s ended, in fact. Since October 2001, the benchmark CRB index has jumped by 78% and the run looks far from over. Like equities, raw materials tend to run in long cycles, with secular upswings lasting over a decade.

During the bear market, investment in new capacity was neglected and raw materials firms are now struggling to catch up with demand driven mainly by Chinese and Indian industrialisation. But bringing new mines or oil wells onstream can take years and, as legendary investor Jim Rogers points out, there haven't been any major mine or oil-field discoveries for ages.

The outlook for agricultural raw materials is also positive as emerging economies improve their diets, boosting demand for protein and grains; the biofuels boom is giving the sector an extra fillip. In all, it looks as if the supercycle has barely begun; Rogers expects the upswing to endure for at least another eight years.

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But it's been tough for retail investors to gain access to commodities. There is only a small range of specialist funds; buying commodity stocks means you are taking on company-specific risk; dabbling in the futures markets is complicated; and spread betting can lead to losses larger than the initial stake. But the good news is that ETF Securities is to launch a range of Exchange Traded Commodities (ETCs) on London Stock Exchange this month.

Like Exchange Traded Funds (ETFs), ETCs will track a particular commodities index and are traded like shares. They are eligible for Isas and self-invested personal pensions, while annual fees are just 0.49%. The new ETCs will offer exposure to 19 major single commodities, including coffee, oil, lean hogs, sugar, wheat, gold and silver.

A further ten will track baskets of raw materials based on the Dow Jones-AIG series of commodity indices, including grains, agricultural commodities, industrial metals and precious metals. As individual raw materials can be volatile, the subsectors may be safer for long-term investors.

Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.