Share

Gushing for oil

THE OIL SECTOR has been a volatile and exciting place for traders over the last two years, and with Rand Merchant Bank (RMB) launching its oil exchange traded note (ETN) there’s one more tool in the arsenal for investors to participate in the sector.

South African investors may be familiar with exchange traded funds (ETFs) but ETNs are a relatively new instrument to the local market.

Like an ETF, an ETN is a passive, non-geared investment. However an ETN is linked to a specific commodity total return index and has a fixed redemption date.

In a nutshell, the RMB product offers investors exposure to the futures contract for light sweet crude oil listed and traded on the New York Mercantile Exchange (NYMEX). It offers investors an alternative to investing in an oil future or directly in an oil company, and a single unit will give an investor exposure to one barrel of oil.

The reason this might be of interest to investors is that oil demand is being fuelled by both an improving economic outlook and a demand for underlying commodities as a perceived hedge against potential inflation.

“ETNs have proved very popular globally and RMB’s industrial commodity ETNs are a first for South Africa, allowing investors direct exposure to some of the underlying commodities driving inflation.” says Bevan Jones, head of Energy and Metals at RMB. “ETNs have a low cost base; they are transparent, liquid and offer accessibility to a wide range of investments, which may otherwise be unavailable to investors.”

Earlier this year the Standard Bank group launced its commodity-linker ETNs for the precious metals suite of platinum, palladium, gold and silver. These have attracted relatively low interest since hitting the market, with the silver product being the most actively traded in the last week.

A real benefit of ETNs is that they remove the need for margin calls, meaning that investors are not faced with margin calls, which is something they would face if they were trading futures contracts.

The commodity ETNs can be found with the following codes on the JSE:

* Rand Merchant Bank Oil ETN – OILRMB

* Standard Bank Gold ETN – SBAG1

* Standard Bank Silver ETN – SBAS1

* Standard Bank Platinum ETN – SBAPL1

* Standard Bank Palladium ETN – SPLAPD1

When Standard Bank launched its ETNs it also beat the inflation drum. Stuart Leslie, a director of Global Markets at the bank, told media at the listing of the product: “Extensive research has shown that there are distinct advantages of including commodities in an investor’s portfolio. Commodities have a tendency to move in the opposite direction to fixed income securities and equities. This provides a valuable stabilising force in any portfolio. In addition to this diversification benefit, the inclusion of commodities can provide a hedge against inflation.”
 
We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.89
+0.2%
Rand - Pound
23.84
+0.3%
Rand - Euro
20.36
+0.4%
Rand - Aus dollar
12.30
+0.3%
Rand - Yen
0.12
+0.2%
Platinum
908.05
0.0%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders