Back in 2011, Standard Bank listed four Exchange Traded Notes (ETNs) on; oil (WTI), copper, corn and wheat. One of the features of an ETN is that they expire and so last month all four expired. Holders at the time were paid out cash and now Standard Bank has issued two new ETNs covering copper and oil.
One key difference is that the oil ETN now tracks the Brent price of oil rather than WTI (listen below for why the change).
Further, both now have a twenty-year term rather than ten years and the TER has been dropped to 0.35% from 0.5% previously.
Importantly as these are ETNs they are not applicable for inclusion in a tax-free account.
Pricing of the ETNs is the futures price for each commodity and then multiplied by the current Rand/US$ exchange rate. The last step in the ETN pricing is the allocation factor which is 1/10 for the copper and 1/100 for the oil. This means that 100 oil ETNs will equal a barrel of oil as quoted.
- Brent oil: SBOIL
- Copper: SBCOP
An ETN (Exchange Traded Note) is a senior, unsecured debt security issued by a bank. As with any other debt, investors are subject to the credit risk of the bank issuing the debt and if the bank goes bankrupt you become a creditor. An ETN also has an expiry date and at expired the issuer will either pay our cash to holders or offer the option to roll into a new ETN covering the same index.
Listen to my interview with Johann Erasmus which starts at 15 minutes.
At Just One Lap, we are big fans of passive investment using ETFs. In this weekly blog, we discuss ETFs on the local market and the factors you need to consider when choosing an ETF. If you have wondered how one ETF differs from another, this is where you can find out. We explain which index each ETF tracks, what type of portfolio could benefit from holding each ETF, and how the costs will affect your bottom line.