Planting the seeds of their own demise?

Do you think anyone in the financial services industry stops to wonder if, by offering so many new ways for the public to buy commodities, they might be planting the seeds of their own demise?

Or, at least, helping to end business as it is currently practiced as the shift from paper to tangible assets continues despite the repeated attempts by the mainstream financial media to thwart its progress.

A case in point is the recent explosion in exchange traded products for commodities - not commodity stocks, the commodities themselves - the most recent addition being the six new ETCs (Exchange Traded Commodities) based on crude oil futures contracts, soon to begin trading in London.

Resource Investor has all the details:

ETF Securities Plans Launch of Six Oil ETCs
By Jane Louis

ETF Securities is set to launch six new oil exchange traded commodities (ETCs) on the London Stock Exchange within the next few weeks.

The new ETCs will give investors a unique “opportunity to gain direct and simple exposure to one, two and three year oil futures prices in Brent and WTI oil benchmarks,” according to a press release from the London-based company.

The six new ETCs – proclaimed as a world first for listed access to the entire oil futures curve – will be listed as: Brent 1yr [LSE:OSL1], Brent 2yr [LSE:OSL2], Brent 3yr [LSE:OSL3], WTI 1yr [LSE:OSW1], WTI 2yr [LSE:OSW2] and WTI 3yr [LSE:OSW3].

By adding six new ETCs to the two originals, “investors now have the choice of gaining exposure to a range of four different maturities with varying rates of backwardation or contango,” the company said in the press release.

Nik Bienkowski, head of listings and research for ETF Securities, told Resource Investor that ETCs, very similar to exchange traded funds (ETFs), are a good investment choice because they do not carry the risks of management and operational problems as many other investments do.

“In comparison to alternatives, if your alternative investment is in commodities or commodity equities, the returns can be quite different,” Bienkowski said. “That’s because resource equities, for example, are correlated to the equity market, and they have management risks, operational issues, etc. … And they also have other parts of the business, especially oil companies for example, that are involved in transporting, refining, gas, electricity, all sorts of things.

“So if you do take oil as an example, our ETC is 99% correlated with the oil price. But if you look at the AMEX oil index, it is actually 50%-60% correlated with U.S. equities and only about 20% correlated with the oil price. So if you’re looking investment returns, if your investor wants to invest in the underlying commodity price, you’re better off investing in an ETC.”

Remember that while there are thousands of equity funds, the number of investment funds holding commodities or commodities futures contracts is still just a tiny fraction of that amount - less than a hundred at last count.