GraniteShares, a new and disruptive exchange traded fund provider, has hit the scene with two new ETFs to efficiently capture broad commodities exposure at low costs for investors.
On Monday, GraniteShares came out with the GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (COMB) and GraniteShares S&P GSCI Commodity Broad Strategy No K-1 ETF (COMG).
The newly formed GraniteShares is headed by William Rhind, Founder and CEO, whom formerly acted as Principal at BlackRock’s iShares, served as Head of ETF Securities in the U.S. and acted as CEO of the world’s largest commodities fund, the SPDR Gold Shares (NYSEArca: GLD). Rhind explained he was originally from Aberdeen, Scotland, or the so-called Granite City, so GraniteShares was “a nod to my heritage.”
The firm’s ambitious business plan caught the eyes of investors early, with the new ETF provider securing venture capital financing from Bain Capital Ventures and other well-known investors.
GraniteShares may be seen as a disruptive factor in the ETF space as the company tries to shake up the way investors gain commodities exposure.
“This was where we felt the best immediate need for innovation,” Rhind told ETF Trends. “We feel investors have been overpaying for commodity ETFs for too long. GraniteShares wants to change that.”
Rhind explained that there are three ways to be disruptive in the industry: First, be the lowest cost as a way to “disrupt other people’s margins, other people’s products.” Second, invent superior products with a better wrap up. Lastly, be first to market.
“We noticed that in the beginning, you created a solution that gives investors exposure to underlying asset class, but is it the most efficient?” Rhind asked. “Is this the best possible structure?”
COMB and COMG are benchmarked to the Bloomberg Commodity Index and S&P GSCI Index, respectively. The funds are structured as 1940 Act funds, do not issue K-1s, and are two of the lowest cost broad commodity ETFs in the U.S. market with total fund operating expenses of 0.25% and 0.35%, respectively.
“These are two very strong ways for investors to get exposure to the commodities market,” Rhind said.
The GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF is actively managed and based on the Bloomberg Commodity Index, with exposure to aluminum, coffee, copper, corn, cotton, crude oil (WTI and Brent), gold, ULS Diesel, lean hogs, live cattle, natural gas, nickel, silver, soybean meal, soybean oil, soybeans, sugar, unleaded gas, wheat (Chicago and KC HRW), and zinc. The active manager will exercise discretion to seek to optimize the investment performance of the fund.
The GraniteShares S&P GSCI Commodity Broad Strategy No K-1 ETF is also actively managed but based on the S&P GSCI Index, with exposure to crude oil (WTI and Brent), corn, live cattle, wheat (Chicago and Kansas), heating oil, gasoil, gold, copper, RBOB gasoline, soybeans, natural gas, aluminum, lean hogs, sugar, cotton, feeder cattle, coffee, zinc, lead, nickel, cocoa and silver.
The funds are called “No K-1” because they are designed to operate differently than commodity-based exchange traded funds that distribute the troublesome “Schedule K-1” to shareholders come tax season. The ETFs are designed to be taxed like a conventional mutual fund and therefore will deliver a “Form 1099” to investors. To deliver 1099s consistent with applicable tax law, the ETFs invest in an underlying subsidiary.
In an attempt to help investors avoid K-1s, the ETFs do not invest directly in commodity futures but rather gains exposure to these investments by investing a portion of its assets in the GraniteShares BCOM Cayman Limited, a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands. The subsidiary is not an investment company registered under the Investment Company Act of 1940 and has the same investment objective and will follow the same general investment policies and restrictions as the funds.
For more information on new fund products, visit our new ETFs category.