ETF Securities will list four new exchange traded commodities (ETCs) on the Australian Stock Exchange this week on the back of heightened global demand from investors seeking uncorrelated and secure assets amid sharemarket volatility.
The four new precious metal ETCs are silver, platinum, palladium and a precious metal basket ETC.
Graham Tuckwell, chairman and Australian founder of UK-based ETF Securities, said in the current environment, investors are migrating towards products that provide security.
Tuckwell was behind the original listing in Australia of the world’s first securitisation of a commodity (ASX:GOLD) in 2003 in a joint initiative with the World Gold Council.
The stock was the eight best performing stock on the ASX over the past 12 months, returning 25.95 per cent to 19 November, 2008. None of the big resource companies made the top 10.
“What we’re seeing on a global basis is that investors are shying away from taking credit risk and in fact many of the global banks that have been offering structured products… huge parts of their businesses are closing down, because investors want security – collateral,” he said.
“ Australia has not yet been hit as hard as the US and the UK in some of these areas but I suspect it will follow very quickly if it hasn’t started already.”
Tuckwell said private banking and high-net-worth individuals were the first movers in the ETC space, but the concept is slowly gaining traction with superannuation funds.
“There’s always been a steady trickle of retail investors, and then some of the big pension funds are starting to move in and I think a few have started to take an allocation, but that’s a process that takes a number of years,” he said.
Global demand for assets that are uncorrelated to the equity markets has driven investment in precious metals through ETCs to more than $38 billion over the last four years.
Tuckwell said investors who seek commodity exposure through listed resources companies lose the diversification benefits that come with ETCs, since the performance of those companies is more closely aligned to equity markets.
“You’re not getting the correlation or the security, and you’re getting all the exposure in terms of management risk and equity correlations,” he said.
“[Investing directly in precious metals] gives a balance in your portfolio away from equities, for example, because they’ve got similar returns on a historic basis, and are uncorrelated to the equity markets, so portfolio theory would say you can increase your returns without increasing risk, or decrease risk for the same returns. Secondly, people are buying gold as an insurance against pretty ordinary times or disaster scenarios, which we seem to be experiencing at the moment.”