Today, Hartford Funds rolled out its first ETF to cover the commodity space. The Hartford Schroders Commodity Strategy ETF (HCOM) relies on a Cayman Islands subsidiary to hold its investments in commodities related derivatives and is subadvised by a team from Hartford’s strategic partner Schroders Investment Management North America (SIMNA).
The fund comes with an expense ratio of 0.89% and lists on the NYSE Arca.
“The valuation of commodities continues to be low relative to both equities and and to the historical prices for commodities, and yet we’re also seeing demand growing in terms of energy transition and agriculture. The other observation is that there’s been an underinvestment recently in production capacity. That all seems to set the table for a commodities cycle,” said Tom McConnell, Hartford Funds’ head of product innovation and implementation.
He further notes that broader inflation, more aggressive fiscal monetary policy and shrinking unemployment also contribute to the case for commodities.
Although HCOM is more expensive than most broad commodity ETFs, it has a truly active approach, which can bump up costs. In terms of expense ratio, it sits below the second-largest ETF operating in the actively managed commodities space, the $1.8 billion First Trust Global Tactical Commodity Strategy Fund (FTGC), which charges 0.95%.
“When you consider the dynamic nature of commodity markets, we think there’s ample room to add value beyond simply the diversification that you would get in a passive approach. It’s active investing that will deliver that,” McConnell said.
The fund is subadvised by a three-person team from Schroders with an average of 19 years operating in the commodities space for each member. That management is driven by four pillars— fundamental, quantitative, technical and sentiment analysis—with fundamental commodity research being the primary driver of the fund’s strategy, McConnell says.
While 25% of the fund’s assets can be invested in derivatives, via the Cayman Islands subsidiary, the remaining portion of assets can be in commodity-related equities, high quality fixed income securities, money market securities and other ETFs, the prospectus says.
Focus On Liquidity
“Given the breadth that the fund can invest in, in terms of commodities and equities related to commodities, there are a number of different risk controls that are in place on the commodities side that are driven by the underlying liquidity of the commodity itself,” McConnell added. “In that fashion we’re giving a very diversified exposure to the broad commodities world and at the same time having some risk controls in place to maintain that diversification.”
He notes that the fund is benchmarked to the Bloomberg Commodity Index.
“That was the one we felt incorporated liquidity measures best. Since liquidity measures are what help us drive our tolerances for concentration, we thought that was the one that best lined up with the strategy,” McConnell said.
The new fund brings Hartford’s family of ETFs to 13 in total, with total assets under management of $4.3 billion.
Contact Heather Bell at [email protected]