Rolle im Portfolio
ETFS Brent Oil 1 Month ETC provides exposure to the price performance of Brent crude oil through the use of Brent crude oil futures contracts.
Before investing in crude oil, investors should understand the difference between Brent crude and its cousin West Texas Intermediate, or WTI, because the assumptions underlying the demand for the two commodities are markedly different. Pricing for Brent is typically considered a proxy for global crude oil markets, while WTI represents the supply and demand dynamics of the US oil market. Therefore, depending on the differences between US and global supply and demand dynamics, the spread between WTI and Brent can diverge significantly, as was the case throughout 2011 and 2012.
Since the second half of 2014, the price of oil has tumbled more than 50% in response to dramatic changes in global supply and demand. The discovery of new oil sources, primarily those in the US, coupled with a decision by OPEC to maintain output has seen global oil supply surge. Meanwhile, a slowing in global growth, particularly in energy-intensive emerging markets, has helped dampen demand for oil. This ETC is particularly suitable for bullish investors seeking to bet on a rebound in the price of oil.
In line with Modern Portfolio Theory, adding commodities to a stock and bond portfolio has historically produced lower volatility and increased risk-adjusted returns. That said, recent years have seen a notable increase in correlations with the major equity and bond markets, which peaked in the face of market turmoil in 2008. Though their portfolio diversification benefits are increasingly questionable, commodity futures--specifically energy futures--may provide a portfolio hedge against unwelcome rises in inflation in Europe.
With the underlying index reflecting the return on commodity futures contracts, it is important to understand the risks associated with the futures market, and not least the phenomenon of contango. Contango occurs when a commodity's futures price is higher than its expected spot price. In this scenario, even if the spot price of a commodity is rising, investors could lose money.
Fundamentale Analyse
Few assets have no immediate substitutes, are finite resources, and are so fundamental to the functioning of the global economy as crude oil.
Crude oil prices tend to be driven by global demand for oil, OPEC actions, and geopolitical events. Demand for crude oil is, given its indispensable role as an input to most economic activity, linked to global economic activity. In recent years, this has been most apparent in developing economies (non-OECD), whose demand for oil in 2013 overtook that of developed (OECD) nations for the first time in history. Specifically, soaring demand from China, propelled by years of strong economic growth, has helped support global prices, despite waning demand from the West partly because of the introduction of government policies on fuel efficiency and the saturation of the automobile market. The long-term migration of large-scale, petrochemically intensive manufacturing from developed to developing markets has further shifted demand for crude. It is therefore reasonable to assume that future demand for crude oil will increasingly come from developing countries and that this demand will continue to be tied to economic growth.
Like other commodities, crude oil is subject to supply shocks, which can result in extreme price spikes. As crude oil is sourced in some of the most politically volatile and geographically remote regions in the world, it is particularly susceptible to supply disruption. OPEC, the economic cartel in charge of around 40% of the world’s oil production, regulates member output and wields enormous influence over world crude supply.
Brent crude oil is a light, sweet crude that can be refined to produce gasoline and middle distillates. Brent is primarily produced in the Brent and Ninian oil fields in the North Sea and refined in Northwest Europe, the Mediterranean, or even the United States if the arbitrage between WTI and Brent is favourable for export. Brent and WTI crude oils are regarded as benchmarks for world and US crude oil prices, respectively, and are typically quoted in tandem with specific attention paid to the spread between prices. The two crudes are of a similar quality and theoretically should price closely to each other. However, throughout 2011 and 2012, the spread widened to unprecedented levels owing to a sustained surge in US production, which boosted reserves and drove down the price of WTI.
Looking forward, the recent discoveries of vast shale gas reserves in the US may dampen long-term demand for crude oil as technology adapts to accommodate the more abundant and cheaper fuel. This may be especially influential if it occurs in the transport sector where oil, with no direct substitutes, remains the only viable option. That said, given crude oil’s currently crucial role in the global economy, it is unlikely to be displaced as the ‘fuel de jour’ anytime soon. This, coupled with its property as a finite resource, means the long-term investment prospects for crude remain compelling.
Indexkonstruktion
The ICE 1-Month Brent Oil Futures Index contains futures contracts with an average maturity of approximately one month. The index does not simply track near-month contracts and roll forward when the contract nears expiry. Instead, the index represents the average trading price of the 21-day Brent futures market in the front month as reported and confirmed by industry media. The index achieves this by taking futures market and media-reported prices for the first-month contract, the second-month contract, and the intraday trading price for the first-month contract. After collecting the data, the index is calculated as an average of three elements: 1) first-month average price, 2) second-month average price (adjusted for spread value between first and second months), and 3) average intraday trading price. Given that the reference index is futures-based and calculated on a total return basis, it has three unique sources of return: spot price return, roll yield, and collateral yield. Roll yield is generated when selling expiring futures contracts and purchasing the next contract. Depending on the price of the next futures contract for each commodity, the index could experience either positive roll yield when the relevant futures curve is in backwardation, or negative roll yield when the curve is in contango. The total return calculation also incorporates the hypothetical returns, known as collateral yield, generated from securities held against outstanding futures contracts.
Fondskonstruktion
ETFS Brent Oil 1-Month ETC synthetically replicates the return of ICE 1-month Brent oil futures. In order to achieve the desired exposure, the ETC enters a funded swap with Shell Trading Switzerland. Under this structure, an investor’s cash is transferred to Shell Trading Switzerland, which in turn agrees to provide the target return. This ETC is not collateralised and, as such, leaves the investor exposed to significant counterparty risk from Shell Trading. In the case of a Shell Trading default, Shell Treasury (another subsidiary of the Royal Dutch Shell conglomerate) would step in to provide credit support. If Royal Dutch Shell (the entire conglomerate) were to go bankrupt, then ETFS would be an unsecured creditor of Royal Dutch Shell. Given the structure, the investor should realise that an investment in this product is not collateralised. Investors will rely entirely upon the credit of Royal Dutch Shell and its subsidiaries to realise the specified return.
Gebühren
ETF Securities charges a total expense ratio of 0.49% for this product, which is on par with most products offering single-commodity exposure. As this product uses synthetic replication, there are also additional swap costs of 1% per year that must be borne by the investor. It should be remembered that there are additional, investor-specific costs associated with trading the ETC, such as bid/offer spreads and brokerage commissions, which should be factored into an investment decision.
Alternativen
Investors seeking cheaper exposure to Brent crude oil may consider the db Brent Crude Oil Booster ETC (TER of 0.45%). This product employs a dynamic futures rolling methodology that attempts to minimise losses in contango markets and maximise gains in backwardated markets by selecting the most appropriate futures contract.
The ETF Securities lineup also includes products offering exposure to WTI crude futures contracts with average maturities of one, two, and three years (TER 0.49%).
