Investing Directly in Commodity Market Through Exchange Traded Notes (ETNs)

Standard Bank has recently listed a series of new ETNs, which provide direct investment into global commodity stocks, including corn, wheat, copper and oil. The new Standard Bank ETNs join its established ETNs for gold, silver, palladium and platinum, which were listed in August last year, as well as its commodity basket ETN, which provides exposure to a basket of the above commodities.

The new commodity-linker products have the following features in common.

• They replicate total return indices on the prices of the product being tracked. The return comes from five sources:
  • The price performance of the near dated futures contract (US$) in the commodity.
  • The US interest rate (overnight US$ LIBOR less 0,125%) that accrues daily on the full value of the investment.
  • Changes in the US$/rand exchange rate.
  • The yield from rolling the current futures contract into the next maturity contract on approaching expiry.
  • Standard Bank deducts an annual management fee of 0,5% (accrued daily).

• The investor in the commodity-linker ETNs benefits from earning the contango premium on the futures exposure (as opposed to investment in the spot market), but without the costs and margin risk of running the futures position and without the costs of owning, storing and insuring the physical commodity.

• The commodity ETNs trade like normal securities on the JSE in rands; are registered as inward listed investments, which means that individual and corporate investors can invest in them without affecting their foreign exchange allowances; and Standard Bank makes a market (i.e. provides a bid and offer price) at all times on the JSE.

Individual product features are as follows: