A unit of Jefferies & Co. Inc. today launched a commodities exchange-traded fund — one that invests in the stocks of companies that produce and distribute commodities and commodities-related products.
Most other commodities ETFs invest in commodities futures. But commodities ETFs that are based on futures have run into trouble because the Commodity Futures Trading Commission has concerns over excessive speculation in futures markets, which was seen in the run-up in oil prices last year and in 2007.
The CFTC has expressed concern that exchange-traded products may have helped facilitate such speculation.
The Thomson Reuters/Jefferies CRB Global Commodity Equity Index Fund (CRBQ) from Jefferies Asset Management LLC is the first of several such commodities ETFs that Jefferies hopes to roll out over the next few weeks. And officials at the firm said that their approach should skirt concerns by staying away from futures.
“Unlike many futures-based commodity ETFs, potential new futures regulation should not impact the ability of these ETFs to issue shares,” Adam De Chiara, co-president of Jefferies Asset Management, said in a statement. “We believe that the new ETFs will provide much-needed capitalization for expanding global commodity production.”
But while commodities ETFs from Jefferies shouldn't run afoul of regulators, they won't be able to provide pure exposure to commodities price fluctuations, said Tom Lydon, president of Global Trends Investments, which manages $75 million in assets.
That exposure can only be gained via commodities futures, he said.
“It's not a perfect substitute,” Mr. Lydon said. “However, as more and more investors are incorporating commodities into portfolios, I would suggest that in addition to being able to have commodities-related ETFs that represent the current spot price of the commodities, if you feel we will continue to see higher commodities prices that you should also invest in commodities producers.”
ALPS Advisors Inc. is the investment adviser for the new Jefferies ETF, and Arrow Investment Advisors LLC is the investment sub-adviser.
The ETF has an expense ratio of 0.65%.
