An investment update by ETF Securities on the price of arabica coffee illustrates just how specialised investing in exchange-traded funds (ETFs) industry has become since ETFs first started trading in 2000.
While most investors would consider commodities as a niche investment, ETF Securities offers an ETF that not only tracks coffee, but also a particular variety of coffee. Because coffee is traded in dollars, there is also an euro share class and a short product.
Nitesh Shah, associate director of research at ETF Securities, says there is indeed demand from investors for such niche commodity plays.
The view is supported by Felix Goltz, of the Edhec-Risk Institute. In an ETF report in the upcoming issue of Funds Europe (June) he says despite a broad range of ETFs available, investors still wish for future product development to address specific needs.
Shah says even within the coffee sector, different trends impact different types of coffee.
“There is enough interest in slightly more esoteric assets to make it viable,” he says, adding that there are both tactical and thematic investors.
Commodity investors have closely followed the movements of two trends pulling coffee prices in opposite directions in recent weeks.
While an arabica bumper crop in Brazil is likely to suppress prices, crops in Central America are under threat after a potent rust fungus.
Shah says the price upside of Arabica coffee will likely remain capped until over-planting subsidies.
“The Brazilian government is likely to intervene if prices fall significantly and speculative futures positioning is already substantially negative, providing a medium-term price floor.”
The Edhec-Risk Institute found that most interest in new products is seen in the emerging market equities segment, in the area of high yielding fixed income assets and ETFs based on new forms of indices.
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