ETCs seen yielding high returns

LONDON: Investments in exchange traded commodities (ETCs) may be a profitable strategy because of their direct exposure to commodity prices, London-based ETF Securities said on Tuesday.

“ETCs are designed to provide simple direct commodities exposure to a broad range of investors. Because the liquidity of ETCs are reflective of the underlying markets, they are ideal for asset allocation or trading strategies,” Nik Bienkowski, head of listings and research at ETF Securities, said.

“Industry fundamentals are supportive of current commodity prices,” he said in a conference call. Exchange traded commodities are listed on stock exchanges and have become popular with investors as a way to get exposure to commodity markets in small or large amounts. Analysts said most investors looking for commodity exposure had in recent years used indices — a bet on rising prices — such as the Goldman Sachs commodity index.

But commodity markets are no longer a one-way bet and investors need new tools. ETF Securities, which has listed a series of ETCs on the London Stock Exchange, Deutsche Borse and Euronext Amsterdam, has about $300 million of assets under its management. Bienkowski said fundamentals for gold and oil were supportive because of limited resources, rising demand and inelastic supplies.

Reserve replacement was becoming more difficult and required higher commodity prices, while discovery rates were falling because of finite reserves and projects moving into riskier and undeveloped regions, he said.