The Royal Bank of Scotland, the issuer behind the Trendpilot series of ETNs, on Thursday is finally launching five new ETNs—all of them based on commodities guru Jim Rogers’ Enhanced Rogers International Commodity Index (RICI) series—after their rollout planned for late last month was delayed by Hurricane Sandy.
Aside from a broad commodity ETN based on Rogers’ flagship-enhanced RICI index, the four other ETNs will track RICI subindexes focused on agriculture, energy, precious metals and industrial metals.
According to the New York Stock Exchange, the five new ETNs coming on Nov. 15 are as follows:
- RBS Rogers Enhanced Commodity Exchange Traded Notes, a broad, multicommodity ETN that will trade under the symbol “RGRC”
- RBS Rogers Enhanced Agriculture Exchange Traded Notes, which will trade under the symbol “RGRA”
- RBS Rogers Enhanced Energy Exchange Traded Notes, which will trade under the symbol “RGRE”
- RBS Rogers Enhanced Precious Metals Exchange Traded Notes, which will trade under the symbol “RGRP”
- RBS Rogers Enhanced Industrial Metals Exchange Traded Notes, which will trade under the symbol “RGRI”
Jim Rogers’ fans should be excited. After all, Rogers is to commodities what Bill Gross is to fixed income. You really can’t ask for a better index series, as Rogers handpicks and weights commodities he thinks are poised to do well over the long haul, based on global demand and liquidity. The new indexes also seek to mitigate contango in their exposure schemes.
While these ETNs based on Rogers’ enhanced RICI series have been trading in Europe for several years, Thursday’s launch marks their U.S. debut.
The NYSE had originally said the ETNs would launch on Tuesday, Oct. 30, but Hurricane Sandy shut the markets on that day, derailing those launch plans.
Taking On Contango
As noted, the new indexes are designed to mitigate “contango”—a frequent feature of futures markets characterized by increasing futures contract prices over succeeding months. That price structure of a so-called normal futures curve means fund managers, when preparing for a given contract to expire, pay more for a new contract than the expiring one is worth. That hurts investment returns, and significantly over time.
The new Rogers indexes go beyond the first generation of RICI indexes that are used in Merrill Lynch’s “Elements” brand ETNs. Those first-generation RICI indexes roll futures contracts over monthly in what is called a “front-month” rolling strategy.
As an example, the roll dates on the new contracts might be selected based on seasons and harvest schedules, depending on the commodity.
Besides the enhanced-roll feature, which will distinguish the RBS ETNs from the current Elements suite, the other notable issue to consider is counterparty credit risk.
Since these products are structured as ETNs, they do come with issuer credit risk, meaning their viability is linked entirely to the financial health of RBS.
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