ETCs Explained - Their Structure and Liquidity

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ETCs are open-ended securities that track the underlying commodity index or commodity; they are 100% backed either by physical bullion or by the commodity future contract. They are "buy and hold" instruments, with no management or maintenance required and are listed on Stock Exchanges, trading and settling in the same way as equities.

The latest presentation from ETF Securities Ltd covers the subject of liquidity. ETF Securities now has over $10.3 billion in total assets across 109 securities, which fall into the following categories; diversified broad range, agriculture, energy, industrial metals, livestock and precious metals; each of these offers a selection of methods of exposure, drawn from physical, classic, forward, leveraged, and short side. The physical ETCs track the commodity spot price, the "Classic" ETCs track total return based on front-month (i.e. first continuation) future, the forward ETCs track total return indices based on futures in further forward nouns; and the leveraged ETCs track total return indices based on front month futures, with a leveraged factor of two times. The short ETCs track total return indices based on front-month futures in a one-to-one ratio, but negative.

ETCs are open-ended securities that track the underlying commodity index or commodity; they are 100% backed either by physical bullion or by the commodity future contract. They are "buy and hold" instruments, with no management or maintenance required and are listed on Stock Exchanges, trading and settling in the same way as equities. Costs are low, varying from 29 to 98 basis points (the latter refers to short or leveraged ETCs) and they are eligible investments for UCITS (pan-European investment funds). They differ from ETFs in that they are securities and not funds or collective investment schemes. They are priced off established benchmarks (commodities, for example are priced off the DJ-AIG Commodity Indices); Net Asset Values and pricing inputs are published daily. Pricing is derived from multiple market makers and management fees are deducted daily and priced into the NAV.

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