This article was originally published on ETFTrends.com.
The end of 2018 may have burned an image of volatility in investors’ minds. As such, alternatives to diversify and counteract volatility make commodities a viable alternative, but Goldman Sachs is looking to scale down its own commodities trading operations.
After months of review, the investment firm is paring down its commodities arm, citing too much capital used for too little profit generated. Areas on the chopping block include the trading of metals like platinum and iron ore.
The proposed move comes as Chief Executive David Solomon is reassessing the firm's business operations in order to cut costs and explore other avenues for profit generation. Commodities traders at Goldman had their worst year in 2017 and only improved slightly in 2018.
Commodities trading at the firm was once its bread and butter business with names like Lloyd Blankfein, Gary Cohn and Harvey Schwartz garnering attention in financial sector circles.
Commodity ETF Option
Investors who wish to diversify with commodities can look to exchange-traded funds (ETFs) like the Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF (BCI) .
BCi seeks to provide a total return designed to exceed the performance of the Bloomberg Commodity IndexSM, which is calculated on an excess return basis—-the first of its kind since its inception in the first quarter of 2017. BCI is actively managed and seeks to provide a total return designed to exceed the performance of the index.
“At that time when we had launched it, we were the first ETF based on this index benchmark so up until that point, there had not been an ETF that was covering this institutional benchmark,” said Stan Kiang, Director of Strategic Accounts at Aberdeen Standard Investments.
With BCI offered at 25 basis points, it also offers a cost-effective solution to providing investors with exposure to commodities. Additionally, there are no K-1 tax documents issued, which is a requirement for investments in partnership interests.
“We were also the first to offer this exposure without the traditional shortcomings of what we used to see in traditional ETF commodity products, such as high fees,” said Kiang.
“The new benchmark exposure, the low cost and the tax efficiency were three big hurdles we addressed with that product (BCI),” added Kiang.
BCI will generally seek to hold similar interests to those included in the index and will seek exposure to many of the commodities included in the index under the same futures rolling schedule as the index. Additionally, BCI will also hold short-term fixed-income securities.
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