3rd Generation Efficient ETP Metal Exposure now available

Jun 19 2012

Today The United States Commodity Funds LLC will launch the United States Metals Index Fund℠ ("USMI") based on the SummerHaven Dynamic Metals Index.

The ETC provide effective exposure to a combination of six industrial and four precious metals.

The fund represent the next evolution in Metals Commodity Investing, whereby efficient Contango effect minimization future-roll is taken as granted, and the product differentiation is instead made through an Active Commodity selection methodology.

In this product that Active selection is done through a Monthly two-step process, whereby the individual Commodity constituents weighting are adjusted.

From the fixed set of commodities: 

Aluminum
Copper 
Lead 
Nickel 
Tin 
Zinc 
Gold 
Silver 
Platinum
Palladium

Five metals are selected each month through the steps outlined below, which are designed to identify metals in a low inventory state. 

STEP 1: Commodity Selection – Backwardation

Choose 3 metals with the greatest backwardation (or least contango). Backwardation is measured as the annualized % price difference between the futures price for the closest-to-expiration contract and the next closest-to-expiration contract for each commodity.

STEP 2: Commodity Selection – Momentum

From the remaining 7 metals, choose 2 commodities with greatest 12-month price momentum. Momentum is measured as the % price difference between the futures price for the closest-to-expiration contract and the price of the closest-to-expiration contract 12-months ago for each commodity.

The 5 metals selected will have their weighting for the following month increased by 3%. The 5 metals not selected will have their weighting for the following month decreased by 3%.

For each of the 10 index commodities, the index will selects the contract month with the greatest Backwardation (or least Contango), taking into account the allowed contracts and maximum tenor for each commodity market.

The maximum eligible tenor is measured as the number of months starting from the maturity of the closest-to-expiration contract. The previous not withstanding, the contract expiration is not changed for that month if a commodity remains in the index, as long as the contract does not enter expiry or enter its notice period in the subsequent month.

From above methodology it is clear that relative out-performance will occur based on a combination of maximizing backwardation across the cross-metal complex and Momentum. (A Backwardation-Momentum combo)

The product is listed with an expense ratio of 0.7 subject to a fee waiver of 0.25 until 2013.03.31

 

ISIN: US911718302