RBS made a significant expansion to its lineup of ETNs this week with the debut of five products offering exposure to commodity indexes bearing the name of legendary hard asset investor Jim Rogers. The new products include a broad-based ETN as well as resource-specific notes linked to certain types of natural resources [see Everything You Need To Know About Commodity ETFs].
The new ETNs include:
- RBS Rogers Enhanced Commodity ETN (RGRC)
- RBS Rogers Enhanced Agriculture ETN (RGRA)
- RBS Rogers Enhanced Energy ETN (RGRE)
- RBS Rogers Enhanced Precious Metals ETN (RGRP)
- RBS Rogers Enhanced Industrial Metals ETN (RGRI)
Each of the new ETNs will face competition from existing products; in addition to a number of broad-based commodity ETPs, there are several products targeting the specific families such as precious metals, industrial metals, agriculture, and energy [see Commodity Guru ETFdb Portfolio].Differentiating Commodity ETPs
With multiple options available for investors seeking commodity exposure, it can be challenging to differentiate the exchange-traded products available. There won’t be a universally superior ETF or ETN that makes sense for every investor; the product right for your portfolio depends on individual circumstances [see 101 ETF Lessons Every Financial Advisor Should Learn].
There are, however, a few factors to consider when comparing commodity ETPs head-to-head:
- Structure: The ETF vs. ETN distinction matters when it comes to commodities. ETNs will have no tracking error, but will also feature some unique tax consequences. Specifically, the won’t provide a K-1 (futures-based commodity pools will) and will be taxed at the applicable capital gains rate (commodity pools are taxed at a blended rate).
- Allocation: There can be significant differences between ETPs that offer exposure to the same type of commodity, in terms of both depth of exposure and concentration. For example, some agriculture ETPs will include only a handful of commodities, while others go much deeper and include dozens of individual resources. Among energy ETPs, some are dominated by crude oil while others maintain a more balanced portfolio. Examine the breakdown between the individual commodities included to get a better feel for the risk/return profile.
- Roll Strategy: This is a big one when it comes to commodity ETPs; the manner in which these products maintain exposure through futures contracts often has a huge impact on returns. It’s important to know whether your futures-based commodity ETP rolls to front month contracts monthly, takes a longer term approach, or uses market signals to determine the exact strategy.
Disclosure: No positions at time of writing.
- Jim Rogers