iShares Commodity Products Debut

October 01, 2006 at 04:00 AM
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Just as commodities have enjoyed a major bull run, a wave of commodity-linked investments is looking to make its way into investors' hearts.

Barclays Global Investors recently expanded its product menu by introducing the iShares GSCI Commodity-Indexed Trust (GSG) to the New York Stock Exchange (NYSE). The new portfolio, which resembles an ETF but isn't operated or registered in quite the same way, carries an expense ratio of 0.75 percent.

GSG is based on the GSCI Total Return Index and as such, contains futures contracts for 24 commodities from all commodity sectors, including six energy products, five industrial metals, eight agricultural products, three livestock products and the two precious metals. With a 75 percent weighting, energy accounts for the bulk of the index's overall value.

While GSG identifies closely with ETFs, its registration as a trust under the Securities Act of 1933 is evidence of the way it should be handled differently in investor portfolios. Since the trust itself pays no taxes, its unit holders bear that liability and are taxed as beneficial owners of a partnership.

In June, Barclays launched two more commodity-linked investments that belong to another exchange-traded asset class: exchange-traded notes or ETNs. Both the iPath Dow Jones-AIG Commodity Index Total Return ETN (DJP) and the iPath GSCI Total Return Index ETN (GSP) trade on the NYSE and carry expense ratios of 0.75 percent.

Unlike ETFs, ETNs are typically registered as investment company products; the "notes" they represent are debt instruments backed by the credit of the issuer. ETNs resemble equity-linked notes, which have perks like principal protection and leverage. However, the ETNs offered by Barclays aim to track their underlying indices without any specially added features.

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