For an exchange traded fund (ETF) provider that didn’t exist at this time five years ago, the story of ETF Securities is certainly an impressive one.
The London-based provider, which deals in exchange traded commodities (ETCs) started two years ago with $60 million in assets. After the first year, the number of assets had grown to $2.5 billion. Today, they’re at $10.5 billion and are Europe’s largest ETF provider.
When they started out, “We were four guys. Now we’re 30. It’s changed a lot,” says Director Hector McNeil.
In 2006, the provider created the world’s first all-ETC platform, which listed on the London Stock Exchange. Since then, the company has branched out to four other major exchanges in Europe: Italy, Paris, Frankfurt and Amsterdam.
Today, the company has a lineup of commodity funds covering everything from the broad market, livestock and agriculture to energy, precious metals and industrial metals. There are 129 ETCs in the lineup.
Driven by the skyrocketing price of platinum, among ETF Securities’ more popular funds is the ETFS Physical Platinum (PHPT.L). The firm also is behind several firsts, including the world’s first gold and oil ETCs. Precious metals, in fact, is one of the company’s most popular sectors, as 46% of assets are focused on them.
Agriculture is 32.3%, followed by energy at 12.1%.
ETF Securities isn’t just popular in Europe, however. McNeil told us that there is interest in the United States, too, as two-fifths of the inquiries the company receives comes from here. Unfortunately, because of Securities and Exchange Commission (SEC) regulations, there isn’t much he can do about it.
“We always have to turn them away and say, ‘I can’t answer your questions,'” McNeil says.
U.S.-based investors can buy funds on other exchanges through their brokers that have the capability to do so.
They’re not immediately looking at branching out into the United States, either. “We have aspirations in the far East and Middle East. That’s where a lot of the action’s going to be. The U.S. is quite saturated,” he says.
ETCs are transparent and open-ended securities that trade on an exchange. They allow investors to get commodities exposure without dealing futures or taking delivery. Their primary difference from ETFs are that while ETFs use a fund structure, ETCs use a secured, undated, zero-coupon note structure. ETNs are 30-year debt instruments, and a promise by the provider that they will pay the investor the amount reflecting a change in the underlying index. Like ETCs, they don’t hold the physical commodity.
ETF Securities’ ETCs range in cost from a 0.39% to 0.98% expense ratio.
It’s no secret that commodities are in the midst of a bull that, according to some experts, is likely to continue for some time. ETF Securities’ lineup has no doubt benefited from developments in recent years, including:
- A booming global economy and emerging markets becoming more correlated to developed ones
- A falling U.S. dollar, as gold is negatively correlated to it
- Precious metals in general are in short supply as supply is kept tight because of few producers
- Energy and fuel prices are at record highs, including those of gas, natural gas and oil
- A global food shortage, which has driven demand for agriculture
- A global building boom, which has led to increased calls for industrial metals such as steel, platinum and silver