ETCs are simple and transparent open-ended securities which trade on regulated exchanges. ETCs enable investors to gain exposure to commodities without trading futures or taking physical delivery.
ETCs are very similar to ETFs because they are both open-ended, continuously traded and have multiple market makers. The main difference is that ETCs use a secured, undated, zero coupon note structure, whereas ETFs typically use a fund structure.
Comprehensible and easy to use
As index ETCs mirror the market as a whole there is no need to investigate individual commodities thus simplifying investment decisions.
Low tracking error
The open-ended nature of these securities ensures tracking error is minimised and creates an arbitrage opportunity should the price drift away from the NAV.
Price not subject to supply and demand forces.
ETCs are open-ended and can be created on-demand. Additionally, market makers provide guaranteed on-book liquidity all day.
Constant trading during open market hours
ETCs can be traded at any time during open hours. So investors can check prices and place orders just like for stocks. As ETC prices mirror the underlying index or commodity, they can move both up and down. Investors can follow and exploit these movements allowing them to plan their transactions on a real-time basis.
No management of physical or futures positions
Hassle free – reduces back-office costs.
All types of investors can gain exposure, and are charged the same fees.
ETCs are available through all UK brokers.
Investors can gain exposure to a vast array of index and single commodity securities through a single transaction.
The wide range of trading strategies available using ETCs mean that they can be suitable for the largest institutional investor through to the private investor. Although a passive tool, ETCs are commonly utilised as part of active strategies and can be useful in short term tactical plays as well as longer term investments. It really depends on the specific requirements of the individual investor and those unsure should seek professional advice.
Investors can buy and sell ETCs throughout the trading day on regulated stock exchanges through ordinary brokerage accounts.
Your broker should be able to buy or sell ETCs as they are listed on regulated exchanges. Most brokers should be able to convert a USD amount to another currency. If not, please contact ETF Securities who will put you in touch with a broker that can execute your order.
ETCs priced off futures are almost 100 per cent correlated with the underlying commodity price, however the spot price return is not an investable return. ETCs are designed to earn a return similar to that which could be earned from investing in the underlying commodity futures markets.
ETCs which are physically backed are priced directly off the metal spot price and therefore returns are 100 per cent correlated to the underlying price. These ETCs track the precious metals price less fees.
Some ETCs (eg ETFS Oil Securities and ETFS Commodity Securities) are priced off futures as it is not possible to store the underlying commodity. In addition, futures pricing can be more liquid and efficient for some commodities, especially where the futures contract helps to standardise the pricing, eg agricultural commodities where quality can vary between crops, seasons and regions.
In the case of ETCs such as ETFS (physical) Metal Securities, precious metals are homogenous, can be stored easily and do not decay. They can therefore be priced directly off the underlying physical commodity.
No, although your broker or financial adviser may also charge you normal transactions costs (commissions) associated with the purchase or sale of ETCs.
ETCs are open-ended, therefore new ETCs can be created by Authorised Participants according to demand. Therefore, the liquidity of ETCs reflects the liquidity of the relevant underlying commodity market(s).
If in the unlikely situation ETF Securities were to go bankrupt, this would not affect the value of the ETCs. Each ETC is issued by a Special Purpose Vehicle whose assets are ring-fenced for investor's safety and the activities for each Issuer is monitored by an independent Trustee. ETF Securities does not hold any investor money - all cash and commodities exposure is outsourced to credit worthy companies who are leaders in the respective field.
The price of ETCs can go up or down, however investors cannot lose more than the amount of the initial investment.
ETCs are not subject to Stamp Duty or Stamp Duty Reserve Tax.
Yes. ETCs are eligible investments for PEPs, ISAs and SIPPs.
Investors should consult their own professional advisers on the implications of their subscribing for, purchasing, holding, switching or disposing of ETCs under the laws of the jurisdiction in which they may be subject to tax. Tax legislation may change.
ETCs are not a fund structure and the ETC Issuer is a Jersey incorporated company and are not part of the FSA compensation scheme.
ETF Securities and its issuing subsidiaries are all incorporated in Jersey and are regulated by the Jersey Financial Services Authority. The company and those that provide administrative services to the company all require licences issued by the JFSC to conduct the business. The ETCs themselves are issued pursuant to a prospectus approved by the FSA, which acts as the home regulator.
For the physically backed ETCs you can arrange for physical delivery of the bullion. This includes Gold Bullion Securities Limited and Metal Securities Limited.
Lyxor were the marketing agent for Gold Bullion Securities. Lyxor had no ownership rights to the company. All operations and management of the Issuer and ETC stays the same without any impact on the Issuer and ETC.
No, for example if you were to buy $100 worth of short or leveraged ETCs there is a possibility that over a period of time the amount invested could fall to zero if the index the ETC is tracking moves against you. However, the investor can never lose more than that original investment.
The short or leveraged ETC is designed to track for example, one or two times the daily percentage change of the index not the actual movement of the corresponding Index. For periods greater than one day, the return may not equal one or two times the change in the Index.
No, because the position is 100 per cent collateralised.
No, there is no need to borrow stock to buy a short ETC. A short ETC is designed to allow investors to buy an investment with short exposure without the usual hassles associated with borrowing stock and selling short into the market.