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Barclays selects commodities

Barclays Wealth has brought out the second issue of the commodities select plan, a capital-protected bond linked to a weighted basket of commodities.

The plan has a five-year term and provides exposure to energy, agriculture, precious metals and base metals.

Within energy, WTI Crude oil makes up 25 per cent, coal 17.5 per cent, gas oil 5 per cent and heating oil 5 per cent. The allocation to base metals comprises 6 per cent each to copper and aluminium, with 4 per cent each to lead and tin. The precious metals component is weighted 3 per cent to platinum, 2.5 per cent to gold and 2 per cent to silver. Finally in the agriculture and livestock sector, 5 per cent is allocated each to GS Livestock sub index, corn, wheat and soybeans.

This commodities basket is broadly based on the S&P GSCI index, but weighted towards the commodities Barclays believes will perform best over the term. Unlike the index it provides direct exposure to corn, wheat and soybeans.
At the end of the term, investors will receive 115 per cent of any growth in the commodities basket plus a full capital return regardless of the performance of the basket.

To calculate the returns, the prices of the commodities will be taken at the start of the term on August 27, 2008 and compared with a monthly average, which takes into account the weightings to each asset, over the final year of the term.

Barclays Wealth points out that commodities have produced strong returns in recent years on the back of demand from growing economies. It says that most retail portfolios are still underweight in commodities because they have been difficult to access and need to be continuously monitored.

This product could appeal to investors as a play on food and fuel inflation, or to investors who want to benefit from commodities growth but who are worried about the risk of potential capital loss. As an asset class, commodities are volatile so diversification and capital protection may be useful.

However, some investors and their advisers may wonder how much longer the commodities boom will last before prices start to ease. This product is also unsuitable for investors who need an income or access to their money over the next five years.

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