ETF Securities is rolling out the first commodity-related exchange traded funds to outperform the widely observed Bloomberg Commodity Indices in a cheap and easy to use investment vehicle without the need to worry about troublesome K-1 forms come tax season.
On Friday, ETF Securities added the actively managed ETFS Bloomberg All Commodity Strategy K-1 Free ETF (NYSEArca: BCI), ETFS Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (NYSEArca: BCD) and ETFS Bloomberg Energy Commodity Longer Dated Strategy K-1 Free ETF (NYSEArca: BEF).
“Advisors and investors typically access commodities through various equity exposures,” according to an ETF Securities note. “Commodities can be complex and costly offerings, but do play a key role in the global economy and provide several potential portfolio benefits: diversification, protection against inflation, and enhanced risk-adjusted returns. These new funds were built to combat the ‘commodity access hassle’ and provide investors an attractive way to obtain pure and broad commodity exposure.”
The new active commodity ETFs try to outperform to the Bloomberg Commodity Indices. The Bloomberg Commodity Indices are the world’s leading benchmark for commodities, covering 22 commodity contracts weighted based on their liquidity, production value and economic significance.
BCI tries to provide long-term capital appreciation that exceeds the performance of the Bloomberg Commodities Index, so it may not invest in all the components of the benchmark but will hold similar interests to those included in the index, along with short-term investment-grade fixed-income securities, money market instruments, certain bank instruments and cash or other cash alternatives, according to a SEC filing.
BCD tries to provide long-term capital appreciation that exceeds the performance of the Bloomberg All Commodity Index 3 Month Forward Index, which tracks movements in the price of rolling position in a basket of commodity futures with a maturity between 4 and 6 months. In contrast, the Bloomberg Commodities Index, which BCI tries to outperform, tracks price of rolling positions in a basket of commodity futures with a maturity between 1 and 3 months.
Lastly, BEF tries to provide long-term capital appreciation designed to exceed the performance of the Bloomberg Energy Index 3 Month Forward Index, which tracks movements in the prices of rolling positions in a basket of commodity futures with a maturity between 4 and 6 months.
The funds will gain exposure to commodity futures contracts through a wholly-owned subsidiary of the fund, which invests directly in commodity-linked instruments.
By indirectly gaining exposure to the commodities market through investing in the wholly-owned subsidiary, the suite of active commodity ETFs may avoid troublesome K-1 forms. Many investors may have noticed that commodity ETFs that track futures markets will complicate tax headaches by issuing K-1 tax forms. These new funds are K-1 free.
BCI and BCD come with a 0.29% expense ratio, and BEF has a 0.39% expense ratio. They are the cheapest diversified commodity ETFs in the U.S.
“We have listened to investors’ needs and responded by offering inexpensive, tax-efficient ETFs that deliver broad commodity exposure in a simplified and modernized product,” Steven Dunn, Executive Director and Head of U.S. Distribution, said in a note. “As the third largest Exchange Traded Product (ETP) commodity provider in the world, it only made sense that ETF Securities spearhead the development of these funds, building on our long history of innovation, and democratizing access to commodities for investors.”
For more information on new fund products, visit our new ETFs category.