ETFs and Jim Rogers Commodity Benchmarks

A November 2012 ETN launch from RBS which accesses strategies of markets maven Jim Rogers, has flown under the radar, at least until yesterday.

RGRC (RBS Rogers Enhanced Commodity ETN, Expense Ratio 0.95%) traded more than 150,000 shares yesterday, a huge multiple of its average daily volume.

The ETN is designed to track a weighted basket of thirty six different commodities via futures contracts and filters this universe based on seasonal patterns and cycles (pertaining to the energy and grains segments) and liquidity in the midst of selecting an allocation of contracts across varying maturities. [Jim Rogers Indices Guide Commodity ETFs]

So these ETNs are certainly not simply investing solely in front month futures contracts (and ETF portfolio managers have no doubt experienced the perils of contango in the futures market via ETPs that are faced with this conundrum in the past), but instead looking to “maximize returns when there are significant price differences between near dated and future dated commodity contracts” according to the issuer’s fact sheet.

Thus, term structure pertaining to each individual commodity futures curve, seasonality, and liquidity are all contributing factors in the index methodology.

These products are new to the marketplace in terms of live trading history, however based on the market environment and increasing interest among advisors and institutions in making commodity allocations to their portfolios (as well as seeing considerable assets flock to others “Rogers” based products such as RJI (ELEMENTS Rogers International Commodity Index-Total Return ETN, Expense Ratio 0.75%) which has $686 million in AUM currently for example), we see a= bright future for these ETNs in terms of growth and visibility among end users.