Interest in ETCs increases

Investors still concerned over liquidity

By Wouter Klijn
Wed 20 Jan 2010

Liquidity concerns prevent exchange-traded commodities from taking off in Australia.

Interest in exchange-traded commodities (ETCs) has increased since the start of this year despite continued concerns about the funds' structure and misconceptions about their liquidity, ETF Securities said.

"We have seen quite a significant uptick in enquiries from the investment public in Australia since the start of the year. People are looking at new products," ETF Securities head of sales Nigel Phelan said.

But the products have not attracted as much interest as in the UK and the US, where ETFs (exchange-traded funds) are a billion dollar industry.

"The number one misconception with all ETFs here in Australia is the perceived lack of liquidity," Phelan said.

Phelan pointed out that liquidity of all of the firm's ETFs is based on the demand in the London market, whether they are listed in the US or here in Australia.

The difference between Australian and US investor interest is especially stark when looking at the recent launch of the platinum and palladium ETCs in the US earlier this month.

In the first five days of trading on the New York Stock Exchange, the ETCs attracted US$320 million in funds.

In Australia, the palladium and platinum ETCs have been available since October 2008 but have so far only attracted a combined $8 million.

"The US ETF market is far more advanced than anywhere in the world," Phelan said. "It is only a matter of time before also the Australian listings become mainstream in people's portfolios."

"I think the Australian public in particular, once they get their head around as to how these things work, will be far more comfortable trading them."

Platinum and palladium are used in the manufacture of cars as catalysts to curb emissions.

ETF Securities expects the demand for these metals to grow as demand for cars from India and China increases and efforts to curb climate change sees governments put more restrictions on emissions.

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