Xtrackers Bloomberg Commodity Swap UCITS ETF 1C

Issuer: Xtrackers

Asset Class: Commodity

TER: 39bps

Trading Currency: USD

Pays Income: False

Listing Date: 10 Nov 2021

Ticker: XCMC

ISIN: LU2278080713

The investment product offers exposure to the performance of a broadly diversified basket of commodities. It achieves this by tracking the Bloomberg Commodity Index Total Return, which is a leading benchmark for the global commodities market. The index is composed of futures contracts on physical commodities, weighted to ensure diversification across various sectors. These sectors include energy (like crude oil and natural gas), precious metals (such as gold and silver), industrial metals (including copper and aluminum), and agriculture (covering corn, wheat, soybeans, etc.). This wide diversification helps to mitigate the volatility associated with any single commodity and provides a comprehensive reflection of the overall asset class.

Incorporating a broad commodity exposure can serve several strategic purposes within a diversified investment portfolio. Commodities historically exhibit a low correlation to traditional asset classes like equities and fixed income, making them an effective tool for portfolio diversification, potentially reducing overall portfolio risk. Furthermore, they can act as a natural hedge against inflation. During periods of rising inflation, the prices of raw materials and goods tend to increase, which can translate into positive returns for commodity investments, helping to preserve purchasing power. The 'total return' nature of the underlying index means that it accounts for the price movements of the commodities, the roll yield from futures contracts, and any collateral yield, providing a more complete picture of the investment's performance.

This particular fund utilises a synthetic replication methodology to track its benchmark index. Instead of physically holding the various commodity futures contracts, it enters into a swap agreement with a counterparty, typically a financial institution. In this arrangement, the fund exchanges payments with the counterparty to receive the exact return of the index. This approach can be highly efficient in terms of cost and can lead to a very low tracking error. As an accumulating share class, all income and capital gains generated by the investment are automatically reinvested back into the fund, fostering potential for compounded growth over the long term without generating taxable income events for the investor.