Demand from pension funds has led Legal &General Investment Management to take its first steps into the ETF market.
The investment manager, which has assets under management worth £347 billion, has today launched the LGIM Commodity Composite Source ETF in conjunction with ETF issuer Source.
Graeme Dewar, head of strategy implementation at LGIM, said: “We are seeing increasing demand from pension clients looking for access to this asset class. Their primary requirements are for an efficient, dynamic product with diversification of counterparty risk. Our solution has been to develop an innovative type of benchmark index that includes a minimum of three constituent sub-indices.”
The new fund tracks the LGIM Commodity Composite Index, which has been designed to offer diversified exposure to commodities by tracking a selection of ‘best of breed’ commodity indices. It is presently made up of four sub-indices: the Barclays Capital Commodity Index Pure Beta TR, the Citi CUBES Index Total Return, the JPMCCI Ex-Front Month Energy Light Index (Total Return) and the UBS Bloomberg Constant Maturity Commodity Index.
Ted Hood, Source CEO, said: “Single-commodity ETCs are useful for investors who want to build a tailored portfolio. But, like LGIM, we see the need for a well-constructed commodity index, providing diversified exposure, at a reasonable cost and in a UCITS-compliant fund.”
In keeping with other Source products, the ETF combines physical investment in US Treasury Bills with a swap overlay. To diversify the counterparty risk Source has appointed four swap counterparties: Barclays Capital, Citigroup, JP Morgan and UBS.
The ETF has a management fee of 0.40 percent and an average swap fee of 0.45 percent.