(An earlier version of this story included an incorrect total
prices for USCI and DBC. The correct prices, which make the new
BNP fund the cheapest in class, appears below. We regret
BNP Paribas, the Paris-based bank, today rolled out a
futures-based commodities fund that will go head-to-head against a
couple of similar strategies, none bigger than the $5.6 billion
PowerShares DB Commodity Tracking Index Fund (NYSEArca:DBC).
The Stream S&P Dynamic Roll Global Commodities Fund
(NYSEArca:BNPC), which will track the world-production-weighted
S&P GSCI Dynamic Roll Excess Return Index-a long-only synthetic
portfolio consisting of futures contracts on 24 underlying index
commodities-will have an estimated aggregate annual fee of 0.86
percent, according to an April 23 prospectus describing the new
BNPC will go against DBC, which is slightly more expensive at
0.93 percent -- including an 0.08 percent brokerage fee -- and will
also face the United States Commodity Index Fund (NYSEArca:USCI),
which charges 1.08 percent in fees, including a 0.95 percent a year
Like its predecessors, BNPC also serves up broad exposure to
commodities through a portfolio that reflects general price
movements and inflation in the global economy.
The fund comes to market at a time when commodities prices have
been pressured by growing concerns that a still-unfolding financial
crisis in Europe and slowing domestic growth both in the U.S. and
in China doesn't bode well for demand for everything from grains to
livestock to energy.
Still, DBC-which has been around since 2006 and has tallied
losses of 7.7 percent year-to-date-has seen investors pour more
than $350 million into the fund in that time frame, according to
data compiled by IndexUniverse.
The two-year-old USCI-the costliest in the space -has shed 4.7
percent in value in the same period amid outflows of nearly $2
million. USCI had $383.8 million as June 5, according to data
compiled by IndexUniverse.
Fund Design Targets Contango
BNPC is designed to maximize yield from rolling futures
contracts in backwardated markets, and minimize roll loss in
When a market is in contango, its front-month contract is the
cheapest in the futures curve, meaning investors have to pay up to
roll into another position upon expiration of the nearby contract,
something that eats up returns-and quite significantly over
Backwardated markets are the opposite of contango, meaning the
"roll yield" turns positive. Therefore, each time fund managers
replace an expiring contract with a new one, they pay less than
what they fetch for the old one, which adds to returns.
BNPC searches for what it calls the optimal contract months
along the curve to roll into instead of simply rolling from one
expiring futures contract into the next in an effort to minimize
the erosive effects of contango. The fund focuses on the most
liquid contracts in a given commodity.
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