A Tour of ETFs: Claymore Broad Commodity ETF (CBR)
Claymore Investments today launched what it calls “Canada’s first broadly diversified commodity ETF”. The ETF, ticker symbol CBR on the TSX, tracks a little-known index called the Auspice Broad Commodity Index. Just like the major commodity indices, the Auspice index holds a portfolio of futures contracts. Currently, the Auspice index equal weights 12 commodity futures in three broad categories: energy, metals and agriculture. The Management Fee of 0.80% is comparable to commodity ETFs and ETNs that trade on the US exchanges. According to the prospectus (available here), Claymore is responsible for all other costs and expenses. HST on the management fees charged by Claymore will bump up the MER to around 0.90%. The ETF hedges its US dollar exposure.
The product brochure accompanying the product release says that the index adopts a roll strategy that minimizes the negative impact of contango and maximizes the positive impact of backwardation. If you recall, many of the commodity ETFs launched with great fanfare and investor enthusiasm put in disappointing performance when traders systematically exploited the specific rollover dates of the contracts by front running the ETFs. Investors in CBR will be hoping that they will not be experiencing what Bloomberg Businessweek termed “Amber Waves of Pain”.
The Claymore Broad Commodity ETF is an interesting product because it provides access to a new asset class that was not available earlier in Canada. In theory, the low correlation of commodities with traditional asset classes provides diversification benefits. Assuming, the theory holds true for Canadian investors (I’m not entirely convinced that Canadian investors who already have plenty of exposure to commodities through resource stocks need to add even more commodities to their portfolios), it remains to be seen if the new ETF can deliver on that promise. So, just as with any new product, I’m on a wait-and-watch mode on CBR.
See also Jon Cheareau’s take on CBR.