Bespoke Financial Consulting is launching an FSA-regulated, open-ended fund offering access to the Dow Jones-AIG Commodity Index from GBP 5,000.
The sub-fund, which will be launched on the 5 December, will track the Dow Jones-AIG Commodity Total Return Index and has received approval from the FSA under the UCITS III rules. It is hedged to sterling and has daily valuation and dealing points. The funds will also offer both accumulation and income units.
Under current tax regulations, any gains following the disposal of units will be subject to capital gains tax, allowing investors to benefit from taper relief plus their annual CGT allowance.
The minimum investment in the sub-fund is GBP 5,000 on the retail share class and GBP 100,000 on the institutional, while charges and commission on the products are in line with typical mutual funds:
• 5 per cent initial and 1.5 per cent annual fees and 3per cent initial and 0.5 per cent trail commission on the retail share class.
• Charges on the institutional share class will be 1 per cent initial and 0.75 per cent annual.
The Index is designed to provide diversified exposure to commodities and is spilt into seven sectors as follows:-
• Vegetable Oil
* Precious Metals
The sectors are represented by individual commodities, which include aluminum, cattle, coffee, copper, corn, cotton, crude oil, gold, heating oil, hogs, natural gas, nickel, silver, soybeans, soybean oil, sugar, unleaded gas, wheat and zinc.
To ensure that no single commodity or commodity sector dominates the Index, the DJ-AIGCI relies on several diversification rules. Among these rules are the following:
•No related group of commodities (eg, energy, precious metals, livestock and grains) may constitute more than 33 per cent of the Index as of the annual reweightings of the components.
•No single commodity may constitute less than 2 per cent of the Index.
Bespoke believes this represent a unique opportunity for investors to gain exposure to this exciting sector.
The question the market is wrestling with is, Is this the peak of a normal commodities cycle or the early stages of a super cycle? Time will tell but the arguments for a super cycle are persuasive -- the emergence of two huge new markets represented by the industrialisation of China and India.
To date growth has been driven by energy and metals, but market guru Jim Rogers feels soft: "Agricultural commodities have dropped 28 per cent over the same period, prices relative to energy are at their lowest for 100 years. Demand [agricultural commodities] from China and other developing economies is expected to pick up dramatically as their populations get richer. The UN estimates that net imports of food by developing nations will have increased five fold to USD 50bn by 2030. Almost all developing countries will become net importers of agricultural commodities during the next 10 years. Suppliers in industrial countries will struggle to keep up with the rise in demand."
Commodity indices use futures contracts, which historically have offered a number of benefits to investors:
• Future prices have traditionally outperformed spot prices
•The index rebalanced has historically outperformed the same basket that is static.
• Commodity futures have a negative correlation to both equities and bonds
• Commodity futures have a positive correlation with inflation.
• The risk/reward figures compare favourably to other asset classes .
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