Market Vectors filed regulatory paperwork detailing a long-flat futures-based multicommodities index ETF that will make use of momentum as a means to weight constituent commodities, and the fact that it included the fund’s price and trading symbol suggests the fund may be quite close to launch. The filing describes an amended version of a fund that went into registration in 2012.
The Market Vectors Low Volatility Commodity ETF has the look of a managed-futures-like ETF strategy, a small pocket of the exchange-traded now inhabited by two funds. It’s an updated version of the Market Vectors Morningstar Long/Short Commodity ETF it first said was in the works in February 2012.
The Market Vectors Low Volatility Commodity ETF will, like the now-abandoned fund detailed in the previous filing, target “momentum” in the way the index is composed. Positions in the new fund, based on the Morningstar Long/Flat Commodity Index, will be either long or flat, the prospectus said.
The new fund will trade on the New York Stock Exchange’s electronic trading platform Arca under the symbol “LVCM,” and will have an annual management fee of 0.50 percent a year, or $50 for each $10,000 invested.
Whether a position will be long or flat is determined, at the time of a monthly repositioning, by comparing the linked price of each index commodity contract to its 12-month moving average.
For example, if, at a monthly repositioning, the linked price for an index commodity contract exceeds its 12-month moving average, the index takes the long side in the subsequent month. Conversely, if the linked price for an index commodity contract is below its 12-month moving average, the index moves the position to cash.
LVCM’s proposed price is almost half the cost of two active managed-futures ETFs now on the market that could be viewed as competition.
Those include the $140 million WisdomTree Managed Futures Strategy Fund (NYSEArca: WDTI) and the First Trust Morningstar Managed Futures Strategy Fund (NYSEArca: FMF), a strategy that came to market early this month and that now has just shy of $5 million in assets.
Managed futures originated a generation ago as a systematic way to diversify investment returns via long or short strategies in a wide variety of futures contracts. They have been run by so-called commodity trading advisors. Putting such strategies into an ETF wrapper is a relatively recent development, with the first-to-market WisdomTree fund launched in January 2011. Again, the Market Vectors fund is index based, while the other two ETFs are actively managed.
Commodities that were in the index at the end of July are: WTI crude oil, Brent crude oil, heating oil, gasoil, gasoline blendstock, HHUB natural gas, high-grade copper, zinc, aluminium, nickel, lead, tin, gold, silver, platinum, palladium, SRW wheat, HRW wheat, corn, soybeans, soybean meal, soybean oil, canola, sugar, cocoa, coffee, cotton, orange juice, rapeseed, milling wheat, rice, live cattle and lean hogs.
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