Why Investors Use ETVs

Just like any investment vehicle, ETVs have their advantages and disadvantages.

 

The following is a non-exhaustive list of such advantages and disadvantages.

Some advantages:

  • ETVs are easy to use. With just one transaction, investors can access traditionally tough-to-access commodities and currencies.  ETVs combine the simplicity of shares with the advantages of commodities trading and options. 
  • ETVs are transparent.  The price of an ETV roughly corresponds to a fixed percentage of the underlying asset.  For example, in the case of SPDR Gold Shares (GLD), the first ETV, each share represents one-tenth of an ounce of the precious metal.
  • ETVs are suitable for many investment strategies.  ETVs are a suitable choice for a whole range of investment strategies, including long-term investment, short-term trading, and benchmarking. 
  • ETVs are readily tradable.  ETVs can be bought and sold at any time during a trading day at a price that is in line with the market.  Liquidity comes from various sources, including professional basket trading, derivatives trading, and from trading in ETVs themselves.  The market is supported by liquidity providers, which are market participants that ensure that ETVs can always be traded, even if there are not enough buy and sell orders in the market.
  • ETVs can help diversify.  With just one transaction, investors can put together a diversified investment portfolio with exposure to broad commodities indices or single commodities from crude oil and copper to corn and cocoa.

Some disadvantages:

  • ETVs don't generate income. Unlike stocks and bonds, ETVs don't generate income for the investor. Owning ETVs is a pure bet on the prices, or supply and demand, of the underlying commodity.
  • ETVs may not accurately reflect the price of the underlying commodity. ETVs that use derivatives contracts may diverge widely in value from the actual price of the hard commodity itself.

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