First oil futures curve ETFs listing on LSE

In the next two to three weeks, the London Stock Exchange (LSE) is expected to list the first exchange-traded funds (ETFs) exposed to parts of the oil futures curve.

London-based ETF developer ETF Securities plans to launch six funds on the LSE, targeting different parts of the futures curves for two oil futures contracts. The products already have regulatory approval and will be referenced to the Atlanta-based Intercontinental Exchange’s Brent and the New York Mercantile Exchange’s West Texas Intermediate crude oil futures. They will offer exposure to the one-, two- or three-year parts of the futures curve for each contract.

ETF Securities already has two products giving investors exposure to the front-month contracts of both futures. Nik Bienkowski, head of listings and research, said more sophisticated ETF investors had expressed interest in the futures-curve contracts. “Over the past couple of years people have come to understand what contango and backwardation is. People have looked for different strategies to increase that effect or gain in other parts of the curve, as investors’ knowledge of these markets increases,” he said.

Acting as a hedge provider, London-based oil giant Shell will hold the underlying futures contracts, which will all have December maturities. Each ETF’s holding of the various December contracts will be adjusted monthly to keep its average maturity in line with its one-, two- or three-year target. “So for our one-year product they’d be holding December 2007-December 2008 contracts, and for our two-year product they’d be holding December 2008-December 2009 contracts,” Bienkowski explained.

ETF Securities will take a 0.49% annual fee to manage the new funds. It currently has $200 million in assets under management across its two front-month oil ETFs, and is hoping to attract $500 million to the extended range over the next year.