United States Commodity Funds , an exchange traded fund provider of futures-based commodity investments, on Tuesday launched a new ETF that invests in both industrial and precious metals.
The fund will utilize a type of enhanced indexing methodology to maximize potential gains and limit losses on the futures curve.
United States Metals Index Fund (USMI - News) tries to reflect the performance of the SummerHaven Dynamic Metals Index Total Return, which is comprised of 10 precious and industrial metals futures contracts selected on a monthly basis. USMI has a 0.70% expense ratio.
As of June 18, the fund is looking to buy Gold contracts for AUG12, Copper MAR13, Aluminum MAR13, Lead OCT12, Nickel NOV12, Tin SEP12, Zinc NOV12, Palladium SEP12, Platinum OCT12, Silver SEP12, Copper Jul12 and Copper DEC12. The fund is also hedging Copper Jul12 and Copper DEC12. [Copper ETFs Slump on China Slowdown Fears]
The Index tries to maximize “backwardation” and minimize “contango” in the futures market by holding a mix of futures contracts.
In an attempt to avoid physical delivery of the contract, funds will have to roll futures contracts. Consequently, as a fund rolls a contract that is about to mature, it may incur a loss or gain when purchasing a later-dated contract. If the later dated contract costs more than the spot price, the commodity is said to be in a state of contango. Conversely, if the later contract costs less than the spot price, the market is in backwardation, which is favorable as the fund may roll the contracts at a gain.
Nevertheless, commodities and futures are typically volatile and not suitable for all investors.
For more information on new product launches, visit our new ETFs category.
Max Chen contributed to this article.
- exchange traded fund
- futures contracts