Rouwenhorst believes in the revolutionary role commodity ETFs have played for retail investors, noting that they’ve helped in a couple big ways:
- Now investors can trade commodities like they trade any other stock, but at the ETF level. There are no margin requirements to be satisfied.
- Many ETFs have offered diversified commodities exposure. Doing this on your own would be very expensive and difficult to replicate. “For a small investor to maintain positions in hogs, oil, corn and wheat all at the same time, making sure that the contracts would not mature…it was a big headache,” Rouwenhorst says.
Nelson points out that commodity investing is still a relatively young business, but that many past products have not been designed with the investor in mind. That’s something they’re hoping to fix with this new product. “What we’ve taken an effort to do is to construct an index from the ground up on the principles we’re familiar with to develop an active index for investors,” says Nelson.
Each commodity’s representation in the index is capped at roughly 7% at the start of each month. The index rules also require that at least one commodity from each of the six commodity sectors: precious metals, industrial metals, energy, livestock, softs and grains.
You can view what’s currently in the index and a complete list of commodities eligible for inclusion on SummerHaven’s site. [10 New ETFs Worth a Look.]
USCI’s expense ratio is 0.95%.