ETCs - how to calculate returns ?

k8r4u

As I understand it, the total return on an Exchange Traded Commodity is made up of the spot return (capital gain in spot price) + roll return (return from rolling the underlying futures over) + collateral return (interest paid on cash invested).

Anyone suggest where I can find the roll dates and interest rates for a specific ETC, for example I've trawled the EFTS and LSE websites for this data for the EFTS DJ-AIGI All Commodities ETC (LSE: AGCP) with zero success: the only parameter available is the spot price.

turbobob

As I understand it, how to calculate returns is simple - its all in the price of the security. You don't get paid interest separately. I understand the securities track the DJ-UBSCI Total Return indices.

"Indexes in the DJ-UBSCI family are calculated on both an excess return and total return basis. The excess return indexes reflect the return of underlying commodity futures price movements only, whereas the total return indexes reflect the theoretical return on fully-collateralized futures positions."

http://www.djindexes.com/ubs/index.cfm?go=home

All commodities excess return index code DJUBS
All commodities total return index code DJUBSTR
DJUBSGB and DJUBSGBT are the codes for the indices converted to £ sterling.

(You can compare total return and excess return indices on that site)

As for the specifics of how the total return indices (interest rates etc.) are calculated, I guess you'd have to ask ETFS or Dow Jones if the information is not readily available on either of the sites.

k8r4u

Hmm, I'm not certain, but I don't think that's correct.

As an example I decided to track down info on the ETFS All Commodities DJ-AIGCI ETC (LSE: AGCP). The only relevant information I could find suggests that interest is paid:

"The ETFS All Commodities DJ-AIGCI(AIGC) is designed to track the DJ-AIG Commodity sub-index and pays a capitalised interest return which cumulates daily. The Index is an "excess return" index and the interest component combines to give a total return investment."

I'll give ETFS a call on Monday to get a definitive answer and report back.

turbobob

k8r4u wrote: »

I'll give ETFS a call on Monday to get a definitive answer and report back.

Please do

I've got a holding of AGCP (a longer term "bet" on commodity prices in general rising) but am not expecting any interest from it. Despite the statement you quoted certainly all the performance graphs etc they show are based on the total return index. As I said the total return index is made up of the spot price of underlying, plus profit from rollover of futures plus interest. If it did pay separate interest it would be an unexpected bonus

tradetime

Have you downloaded the prospectus for the ETC you are interested in? You may find the information you are looking for there. I suspect they will only give a rough approximation of the roll date to prevent traders front running the roll as was happening with the American USO in crude futures. I believe the Indices they track, the DJ-AIG indices are excess return indices in the main, but the fund will be a total return fund unless it is backed by physical such as some of the bullion funds.
I suspect what you are trying to do could prove rather complicated and I'm not sure what you would hope to achieve from it other than curiosity value.

tradetime

turbobob wrote: »

Please do

I've got a holding of AGCP (a longer term "bet" on commodity prices in general rising) but am not expecting any interest from it. Despite the statement you quoted certainly all the performance graphs etc they show are based on the total return index. As I said the total return index is made up of the spot price of underlying, plus profit from rollover of futures plus interest. If it did pay separate interest it would be an unexpected bonus

AFAIK most of the DJ-AIG commodity indices are excess return indices, unless stated otherwise, however the ETC's, that is the fund that you buy in the main are total return unless they are backed by physical bullion, however I am not sure there is any "interest payement" out of the fund as this probably is used to cover management fees and any negative roll yield.

turbobob

Front rolling is what? Is it something along the lines of buying futures contracts in advance of the index fund in the anticipation that the price will go up when the funds rollover the contracts?

BTW the DJ-AIG indexes are now called DJ-UBS (UBS have acquired them from AIG).

tradetime

turbobob wrote: »

Front rolling is what? Is it something along the lines of buying futures contracts in advance of the index fund in the anticipation that the price will go up when the funds rollover the contracts?

BTW the DJ-AIG indexes are now called DJ-UBS (UBS have acquired them from AIG).

Yes "front running" is buying ahead of the roll because you know demand is coming in, in reality the demand needs to be fairly large, but in the case of USO it was huge, the Fund subsequently announced that it would spread it's roll over a number of unspecified days, following an investigation by the CFTC into a link between volatility in Crude futures and the fund.

http://www.marketwatch.com/story/correct-cftc-says-investigating-uso-feb

k8r4u

I spoke to ETFS today, who confirmed turbobob's explanation that the price quoted in the market is adjusted daily to include the performance of the underlying futures plus the roll yield plus the collateral yield:

turbobob wrote:

... the total return index is made up of the spot price of underlying, plus profit from rollover of futures plus interest ...

The guy I spoke to contended that the statement on the fact sheet was correct - the ETC does as it says "pay a capitalised interest return which cumulates daily", but unlike a stock position or a stock-based ETF which would typically share out dividends as separate cash payments, it pays it in the quoted price. Seems a fair enough interpretation, albeit a different one to how it came across to me when I first read it.

sabretoothtigger

accumulation (vs income) funds are quite common, better on tax for some