State Street Investment Management lists a synthetically replicated commodities ETF on the LSE

State Street Investment Management today listed a new Exchange Traded Fund focused on the global commodities market on the London Stock Exchange: the State Street SPDR Commodity UCITS ETF (Acc).

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Article created by the editorial staff of ETFWorld.co.uk

Yie-Hsin Hung, Chief Executive Officer State Street Investment Management

State Street Investment Management lists a synthetically replicated commodities ETF on the LSE

State Street Investment Management today listed a new Exchange Traded Fund focused on the global commodities market on the London Stock Exchange: the State Street SPDR Commodity UCITS ETF (Acc).

The ETF, which follows a reinvestment strategy, aims to track the overall performance of the broad commodities market through diversified exposure to futures.

Product details

The ETF is identified by the ISIN code IE0006HIE7H2. The annual Total Expense Ratio (TER) is set at 0.12%, a competitive level for commodities exposure.

This is a reinvestment ETF: any income generated by the underlying assets is automatically reinvested within the fund without being distributed to investors.

The underlying index: structure and methodology

The product tracks the Dow Jones Commodity Index 3 Month Forward – Quarterly Reweighted. The index, developed by S&P Dow Jones Indices, is a representative indicator of the commodities futures market, designed to prioritise diversification and liquidity through an equally weighted approach.

The specific version selected for the ETF refers to the first futures contract included in the index maturing three months from the current date. The methodology provides for an annual rebalancing in January and quarterly reweighting in April, July and October, carried out on the working day immediately preceding the first monthly roll date of the Dow Jones Commodity Index.

The index is divided into three macro-sectors – energy, metals and agriculture (including livestock) – and is designed to ensure, under normal conditions, equal weighting across them. At the individual component level, a cap mechanism (35/20 with a buffer at 32/17) operates to prevent excessive concentrations.

Tracking method and operation

The ETF employs synthetic tracking via financial derivatives, rather than investing directly in commodity futures. This approach, which complies with UCITS regulations (the fund is domiciled in Ireland as an OEIC), allows for exposure to the index’s returns without physically holding the underlying contracts.

To limit the impact of roll yield – the cost or gain generated by the periodic renewal of expiring futures contracts – the index adopts a three-month ‘forward’ strategy, aimed at mitigating roll costs. In contango phases (when forward contracts are more expensive than those nearing expiry), simply maintaining exposure would generate a constant loss; choosing a nearer maturity can reduce this effect.

Market context and benefits for investors

The instrument provides diversified exposure to the commodities universe – including energy, industrial and precious metals, grains, soft commodities and livestock – within a single listed product. In a macroeconomic environment characterised by geopolitical tensions and a possible resurgence of inflationary pressures, the commodities asset class can offer opportunities for decorrelation from traditional portfolios, whilst suffering from structurally high volatility.

State Street notes that ‘investing in commodities involves significant risk and is not suitable for all investors’ due to the high volatility to which commodity prices are subject as a result of market fluctuations, changes in interest and exchange rates, inflationary trends and geopolitical shifts.

Source: ETFWorld.co.uk