The LGIM Commodity Composite Index aims to be a new kind of benchmark for broad-based commodity exposure, says L&G. Using LGIM’s experience as an index manager (LGIM manages £347bn in assets) and both a quantitative and qualitative screening process, it offers exposure to a selection of what it terms ‘best of breed’ commodity indices. Graeme Dewar, head of strategy implementation at LGIM, explains that the firm is “seeing increasing demand from pension clients looking for access to this asset class. Their primary requirements are for an efficient, dynamic product with diversification of counterparty risk. Our solution has been to develop an innovative type of benchmark index that includes a minimum of three constituent sub-indices. These sub-indices are selected using LGIM’s experience and core skill set to deliver a high quality, dynamic commodity composite index.”
The index at launch comprises four sub-indices and will be reviewed at least annually to ensure that it captures developments in commodity indexation.
Investors wishing to gain exposure to the LGIM Commodity Composite Index can do so via the LGIM Commodity Composite Source ETF. Source’s ETF structure combines physical investment in US Treasury bills with a swap overlay to provide more consistent index tracking. To diversify both counterparty risk and the composition of the index, the index references a number sub-indices and the fund will use multiple swap counterparties. Source says it has mandated four swap counterparties for this product: Barclays Capital, Citigroup, JP Morgan, and UBS.
The LGIM Commodity Composite Source ETF will complement Source’s existing range of exchange traded commodities. Source chief executive Ted Hood explains: “Single-commodity ETCs are useful for investors who want to build a tailored portfolio. But, like LGIM, we see the need for a well-constructed commodity index, providing diversified exposure, at a reasonable cost and in a UCITS-compliant fund. We are delighted to be partnering with LGIM, one of the world’s leading index managers, to create an ETF that tracks this groundbreaking index”.
The LGIM Commodity Composite Source ETF is listed on the London Stock Exchange and trades in GBP and USD. It is registered for sale in the UK and Ireland and is in the process of being passported to Austria, France, Germany, Finland, Italy (for institutional investors only), Luxembourg, the Netherlands, Sweden and Switzerland.
The indices included in the initial composition of the LGIM Commodity Composite Index are as follows:
Barclays Capital Commodity Index Pure Beta TR
Citi CUBES Index Total Return
JPMCCI Ex-Front Month Energy Light Index (Total Return)
UBS Bloomberg Constant Maturity Commodity Index
LGIM Commodity Composite Source ETF
GBP / USD
0.40% per annum
Average Swap Fee
0.45% per annum
London Stock Exchange
LGIM Commodity Composite Index
Benchmark Bloomberg Ticker