The fund aims to provide exposure to commodity-related shares and underlying commodities such as oil, metals and natural gas. It has a minimum investment of £1,000 and is administered by Marlborough Fund Managers. It will be based around a core and satellite approach, using a software system developed over sixteen years by iFunds investment director Nigel Baynes and IT director Paul Hudson.
An ETF based on the Reuters/Jeffffries CRB index will form the core of the portfolio, while satellite ETF holdings will provide exposure to individual sectors that are outperforming the index. Baynes, who will run the MFM iFunds ETF commodity fund, may invest in investment trusts and Oeics but his preference will be ETFS as these offer exposure to the underlying assets in addition to commodity shares.
According to iFunds, the Oeic fund of funds structure makes ETFs more attractive and accessible to IFAs. ETFS are not actively managed and have low charges, which makes it difficult for commission to be paid to IFAs. With the fund of funds approach, the fund manager is responsible for trading the funds, allowing iFunds to justify the fund’s initial charge of 5 per cent and annual charge of 1.75 per cent, from which commission is paid.
Commodity prices have shot through the roof due to factors such as a strong demand for China while there is a limited supply. The recent correction in equity markets, which has been blamed partly on rising commodity prices, has cast doubt on whether the increase will continue. However, the pluses are that demand from China is likely to be long-term, while companies in the commodities industry are expanding their capacity through mergers & acquisitions rather than looking for new supplies. This should be good for commodity share prices.