New York-based asset manager Van Eck Global filed paperwork with
the U.S. Securities and Exchange Commission to bring to market a
futures-based multicommodities fund that uses a momentum strategy
designed to generate profits no matter which way markets are
The Market Vectors Morningstar Long/Short Commodity ETF will be
either long, short or âflatâ a given commodity based on the
strategy of its underlying Morningstar Long/Short Commodity Index.
Positions will come under review in monthly rebalancings. The
weight of each individual commodity in the underlying index is the
product of two factors:magnitude, and the direction of the momentum
Van Eckâs planned ETF is akin to the one-year-old $234 million
WisdomTree Managed Futures Strategy Fund (NYSEArca:WDTI) and also
bears resemblance to three managed futures ETF strategies ProShares
put into registration in December 2011.
The focus on commodities in investment markets reflects a
decade-long boom in agricultural products and industrial materials
fueled largely by the growth of developing countries such as China.
Moreover, some academic theories suggest that momentum trades are
persistent in the commodities market, and that a simple momentum
index can exploit those trends.
The prospectus of Van Eckâs proposed fund said that the
following commodities may currently be considered for inclusion in
WTI crude oil, Brent crude oil, heating oil, gasoil, RBOB
gasoline, HHUB natural gas, copper, high-grade copper, zinc,
aluminium, nickel, lead, tin, gold, silver, platinum, palladium,
SRW wheat, HRW wheat, corn, soybeans, soybean meal, soybean oil,
canola, sugar, cocoa, coffee, cotton, orange juice, rapeseed,
milling wheat, rice, live cattle and lean hogs.
The underlying index for the Market Vectors ETF compares the
âlinked priceâ of each commodity to the 12-month moving average
of the linked price.
For example, if, at a monthly rebalancing, the linked price for
a commodity exceeds its 12-month moving average, the index takes
the long side in the subsequent month. Conversely, if the linked
price for a commodity is below its 12-month moving average, the
index takes the short side.
Exceptions to the fundâs momentum-based rule are made in the
If the signal for a commodity in the energy sector is short, the
weight of that commodity is moved to a flat position, namely cash.
According to the prospectus, energy is treated differently because
its price is extremely sensitive to geopolitical events and not
necessarily driven only by supply-demand imbalances.
To be considered for inclusion in the underlying index, a
commodity futures contract must be listed on a U.S. exchange, be
denominated in U.S. dollars and rank in the top 95 percent by total
U.S. dollar value of the total open interest pool of all eligible
The futures contracts in the fund will be listed, variously, on
the NYMEX, the InterContinental Exchange, the Chicago Mercantile
Exchange, the Chicago Board of Trade and the Kansas City Board of
Trade, according to the filing.
One of the principal risks of investing in the proposed fund
comes from the short positions it may take. Short positions carry
the risk of unlimited loss on a short position, since the price at
which the fund would need to cover a short position could
theoretically increase without limit.
The prospectus for the ETF didnât include a ticker or an
expense ratio, but it did indicate the fund will be listed on Arca,
the New York Stock Exchangeâs electronic trading platform.
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