It's not technically an exchange-traded fund, but Deutsche Bank's new DB Commodity Index Tracking Fund is the first of several ETF or ETF-like products tracking commodities expected to hit the market this year.
The new fund, the first U.S.-listed commodities index fund, will track the Deutsche Bank Liquid Commodity Index, holding futures contracts in six commodities, as well as three-month Treasury bills, used as collateral for the contracts. With Friday's launch on the American Stock Exchange, Deutsche Bank beat industry leader Barclays Global Investors to the market; BGI's broad-based commodities index offering, the ETF-like iSharesGSCI Commodity-Indexed Trust, which will track an index that covers 24 commodities, is still in registration. Both funds are structured as commodity pools, regulated by the Commodity Futures Trading Commission.
The new Deutsche Bank fund is also the first to use derivatives to track commodities; the two existing U.S.-listed commodity ETFs, the wildly popular offerings tracking the price of gold, actually hold gold bullion.
Kevin Rich, CEO of Deutsche Bank Commodity Services, said the fund meets a need for investors that hasn't been there up to this point.
"It's got the transparency that people love in the SPDRs, without the ambiguity, and now tax problems, that some of the open-end mutual funds have," he added.
The DBCLI, created in 2003, tracks six highly-liquid futures contracts on light, sweet crude oil, heating oil, aluminum, corn, wheat and gold. It is rebalanced annually to weights of 35%, 20%, 12.5%, 11.25%, 11.25% and 10%, respectively. All contracts are also rolled forward annually, except for the energy contracts, which will be rolled monthly.
The unusual structure also leads to a somewhat higher expense ratio: In addition to about 150 basis points in management fees and operational costs, the fund will charge about 40 bps for brokerage fees. In an ETF, the fund sponsor does not incur brokerage costs, though Rich says he expects the yield from the T-bills to offset some of the fees.
Industry watchers say the novel structure could pave the way for ETF-like products tracking a variety of commodities using derivatives. Already, in addition to the iShares commodities index product, BGI's silver ETF is also moving closer to market, with the Securities and Exchange Commission last month approving its listing on the Amex, and opening a comment period. Three ETFs tracking the price of oil are also in the works.