USCI United States Commodity Index Fund

The flurry of ETF activity continues here in June as BNP Paribas becomes the latest company to jump into the fray. The French bank is dipping its toes into the ETF world with a new commodity fund, seeking to carve out a niche in the crowded space with a new take on a contango-fighting strategy.

The new product trades under the symbol BNPC and is called the STREAM S&P Dynamic Roll Global Commodities Fund. This tracks the changes in the level of the S&P GSCI Dynamic Roll Excess Return Index which gives investors a production-weighted portfolio of commodities which trade on liquid futures markets.

Overall, the index is comprised of two dozen commodities from all the major groups. This includes several products in the energy, grain, softs, livestock, precious metal, and industrial metal sectors, giving investors broad exposure to the entire commodity market (read Three Commodity ETFs That Have Not Surged).

While this might sound similar to a number of other commodity ETFs already on the market, investors should note that the product uses a different strategy when it comes to determining the contract months for its components (Read Four New Commodity Agricultural ETFs To Invest In).

According to BNP Paribas, the underlying index uses a dynamic rolling strategy to determine which months to obtain exposure to along the curve.  The focus looks to be on maximizing yield from rolling long futures contracts in backwardated markets and minimizing roll losses that stem from rolling long futures contracts in contangoed markets.

Currently, the product is heavily tilted towards energy products that do not mature for quite some time. Brent crude and WTI crude account for nearly 48% of the product and their contracts do not mature until, respectively, December 2014 and December 2013 (read Four Vanguard ETFs for Long-Term Investors).

Meanwhile, the next two biggest components are also in the energy space—gas oil and heating oil—while these have somewhat longer maturities as well. Clearly, the product has a very heavy focus on energy commodities and is somewhat light on livestock and metals, both of the industrial and precious metal variety.

In terms of maturities, the product is across the board with some not maturing until 2014 in December. However, this is the outlier and a number of commodities mature in a month’s time while a few others do not have maturities until some time in 2013, suggesting that the product is quite spread out in this regard.

ETF Competition

A major competitor to the just launched BNPC looks to be USCI, the United States Commodity Index Fund. Both funds utilize a contango fighting strategy although USCI costs about 80 basis points a year while BNPC, looks to have an estimated aggregate annual fee of 0.86%.

This popular product looks to take a similar, but slightly different approach to commodity investing tracking the SummerHaven Dynamic Commodity Index Total Return. This benchmark looks at both contango and inventory levels in order to decide which 14 of the 27 commodities that it will be investing in, rebalancing on a monthly basis (See Is USCI The Best Commodity ETF?).

Beyond this choice, there are a whole host of other commodity ETFs and ETNs in the marketplace, suggesting that BNPC will have a tough time building assets. Possibly if the BNPC method which includes taking some of the longest-dated contracts in the US ETF market today can produce alpha, BNP Paribas can manage to establish a beachhead in the ETF industry and start down the path to becoming a player in the space.

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(BNPC): ETF Research Reports
 
US-COMMODITY IF (USCI): ETF Research Reports
 
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