The Return Of Commodity ETFs
Drew Voros
ETF.com Editor-in-Chief
For the past few years, new commodity ETFs had been a rarity. In 2015, just two commodity ETFs were launched. This wasn’t actually surprising given that the commodity boom had come to an end, with 2015 marking the low point in commodity ETF popularity.
But things started picking up in 2016, with the launch of six commodity ETFs, including three that are actively managed—one of those targeting oil—and three others that also covered the oil market. However, it’s debatable just how “active” the three actively managed ETFs are.
To get around the K-1 tax form requirements, a large chunk of the commodity products launched in the past year or so use a new kind of structure. The commodity futures part of the portfolio—up to 25% of the fund—is managed in an offshore fund and usually tracks an index at least fairly closely.
The collateral, which represents the remainder of the funds, is invested in fixed-income or cashlike vehicles and is actively managed. Depending on how actively this portion is managed, it can result in a few extra basis points of added performance.
Long-Only Returns
This year, the trend has continued and accelerated, with another six long-only commodity ETFs rolling out in just the first three months of the year, four of which implement the “active” K-1-free structure that has become popular.
But it’s not just funds that do away with the K-1 forms that are launching. This year’s ETF rollouts have also included a clone of the broken iPath Bloomberg Natural Gas Subindex Total Return ETN (GAZ), a formerly popular exchange-traded note that has been closed for creations since 2009. The new product, the iPath Series B Bloomberg Natural Gas Subindex Total Return ETN (GAZB)—unlike its predecessor—is callable, and unlikely to fall victim to zombie status, as GAZ has done.
Another of the newcomer commodity funds is the SPDR Long Dollar Gold Trust (GLDW), which holds physical gold bars in the manner of the well-known SPDR Gold Trust (GLD) but also hedges its exposure with a short position in non-U.S. currencies.
But what’s really different with this resurgence in commodities is the “new and improved” aspect of the funds that are launching. These are traditional commodity strategies, but they include new features that make them a bit better than the versions that were previously launched.
Vanguard Cuts Expense Ratios
Vanguard has announced lower expense ratios for 82 of its mutual fund and ETF shares. The firm is known for its automatic expense ratio cuts (and increases), which are based on the amount of assets a fund has under management. Vanguard estimates that its investors saved $159 million due to these latest reductions.
The U.S. broad-market Vanguard Total Stock Market ETF (VTI) has seen its expense ratio cut by 1 basis point to 0.04%, putting it within striking distance of similar funds offered by iShares and Charles Schwab that carry expense ratios of just 0.03%. Of course, VTI is a share class of the world’s largest mutual fund, the Vanguard Total Stock Market Index Fund, which has some $550 million in assets under management.
Similarly, the Vanguard S&P 500 ETF (VOO) also saw its expense ratio fall by 1 basis point to 0.04%, bringing its cost even with that of the iShares S&P 500 ETF (IVV), and the Vanguard Total Bond Market ETF (BND) also had its price lowered by 1 basis point, to 0.05%.
In all, a total of 17 ETFs were affected by the expense reductions, including 13 equity funds and four bond funds. All together, the 70 Vanguard ETFs represent some $681 billion in assets under management.
Drew Voros can be reached at dvoros@etf.com.
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