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iShares Adds To Swap-Based ETF Range

Written by Staff

January 23, 2012 10:27 (CET)

iShares is expanding its swap-based ETF range with the launch of four new funds tracking broad commodity indices.

The iShares S&P GSCI Dynamic Roll Agriculture Swap, iShares S&P Dynamic Roll Energy Swap, iShares S&P GSCI Dynamic Roll Industrial Metals Swap and iShares S&P GSCI Dynamic Roll Commodity Swap ETFs are being listed on the London Stock Exchange on Monday January 23. Each fund carries an annual total expense ratio of 0.45%. The funds will also charge a spread to reflect the cost of swap provision.  At launch, this spread ranged from 0.37% to 0.51% a year for the four ETFs.

The new iShares ETFs track indices from Standard and Poor’s GSCI Dynamic Roll range.  In common with most indices offering exposure to raw materials, the Dynamic Roll series is based on notional investments in commodities futures contracts.

However, by contrast with the traditional method of tracking the “front-month” futures contract and then rolling at monthly intervals from the expiring contract into the next month, the Dynamic Roll index uses an algorithm to select from up to eleven contract months, depending upon the shape of the commodities futures curve.

The objective of this approach, says S&P, is to minimise negative roll yields when the futures curve is in contango.  Under such conditions, the index algorithm will search out the optimum rebalancing strategy from amongst the forward dates available. Under conditions of backwardation, when rolling futures provides a positive yield, the algorithm will roll into the next (near) month contract.

The launch more than doubles the number of Irish-domiciled swap-based (synthetic) ETFs offered by Europe’s largest ETF issuer.  The funds will use multiple derivatives counterparties and swap exposures will be collateralised to 120% of notional exposures, says iShares. Collateral and index holdings, swap counterparties, aggregate swap exposure and swap spreads will be disclosed daily on the iShares website.




Europe Blog

Friday, January 27, 2012 14:43 (CET)

Posted By Paul Amery

Paul Amery

By comparing two low-volatility offerings in the US, it’s easy to see why ETFs continue to gain at the expense of other funds



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