A new exchange-traded fund (ETF) that is globally focused on aluminum took its place in the investment world on Wednesday, joining a new index-based commodity fund that launched on Monday.
Global X Funds launched its Global X Aluminum ETF (ALUM), which tracks the Solactive Global Aluminum Index, and Van Eck Global launched its Van Eck CM Commodity Index Fund (CMCAX, COMIX, CMCYX). The former, says the company, is the first ETF globally focused on aluminum, and the latter, says its originators, is designed to reduce the potential negative effects of contango.
The Global X Aluminum ETF acknowledges the importance of aluminum on the world market; as one of the most heavily consumed metals in the world, its demand has grown 38% in the past ten years, according to Bloomberg. It is used in energy, industrials, and consumer goods.
Bruno del Ama, CEO of Global X Funds, said in a statement, “Aluminum has seen tremendous price increases as a result of increased global demand, especially from China and India. Its invaluable properties to various industries make it essential for future economic growth.”
The Van Eck CM Commodity Index Fund tracks, before fees and expenses, the performance of UBS Bloomberg Constant Maturity Commodity Total Return Index (CMCI). Kristen Capuano, marketing director at Van Eck, said in a statement that the fund was designed to counter the “negative roll yield that occurs during periods of contango” through “using a benchmark that places less emphasis on the front end of the futures curve.”
Contango, explains the company, “occurs when the price of a futures contract exceeds the expected spot price at contract expiration.” That means that during periods of contango, sellers benefit from a fall in futures prices. “Conversely, backwardation occurs when the price of a futures contract is below the expected spot price at contract expiration.” Under these conditions, buyers benefit from rising futures prices, and this is called roll yield. Negative roll yield, on the other hand, is the return lost during contango.
The CMCI is rebalanced monthly so that the risk of overconcentration in any single area is minimized. It is unlike traditional indices in that it is diversified along the entire curve and uses a continuous roll, according to the company.