Claymore Securities has filed papers for a new ETF tracking the Standard & Poor's Commodity Trends Indicator, a momentum-based commodities index that aims to outperform the broader commodities market.
The index tracks 16 commodities futures contracts divided into six sectors: Energy, Industrial Metals, Precious Metals, Livestock, Grains and Softs. Rather than simply taking a long position in each commodity, however, the index takes either a long/short or long/flat approach based on momentum trends in each sector. The index will short all sectors except for Energy; if momentum is trending against Energy, the index will simply exclude the sector altogether.
Academic theory suggests that momentum trends are persistent in the commodities market, and that a simple momentum-based index can exploit those trends.
The Elements platform already has an ETN tracking this index. The Elements S&P CTI Index ETN (NYSEArca: LSC) has more than $50 million in assets and has been trading since June 2008. Since that time, it has been by far the best-performing broad-based commodity product on the market. It has traded roughly flat since its launch, compared to 50%+ declines in the most popular broad-based commodity funds, the iPath DJ-AIG ETN (NYSE Arca: DJP) and the PowerShares DB Commodity Index ETF (NYSE Arca: DBC).
The question about the new Claymore product is whether investors will prefer the new ETF over the established ETN. The ETN has the advantage of liquidity and a promise of delivering zero tracking error, but comes with the downside of all ETNs: Its value is based on the credit of the bank that developed the product (HSBC). The ETF has no such credit risk, but will launch with both tracking and liquidity concerns.
The fund will list on the NYSE Arca. Fees and expenses were not included in the filing.
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