Barclays Capital has built a new commodities strategy that will be used as an underlying for the first time in a new series of structured notes set to launch next week in the US.
The proprietary Barclays Capital Commodity Strategy 1501 will be used as underlying for five-year notes issued in $1,000 increments.The aptly named Barclays Capital Commodity Strategy 1501 Notes due 5 March 2013 will have a participation rate between 120% and 130% and will sport a 20% buffer, but will not pay a coupon.
According to Barclays, the commodity strategy is designed to, “…Reflect the excess returns available by using a dynamic allocation process to invest in futures contracts on 20 physical commodities at the optimal points on the commodity curve.”
For each of the commodities, Barclays will maintain the appropriate futures contract: zero-month-deferred, one-month-deferred, two-month-deferred, five-month-deferred or eight-month-deferred. The strategy will be reconstituted each month based on a proprietary algorithm that is, “…intended to identify the point on the commodity curve with the maximum return/risk ratio.” The only exceptions will be for three energy components (natural gas, #2 heating oil and gasoil), which will always be maintained at zero-month-deferred.
Each of the 20 commodities has been assigned a target weighting. The largest component is natural gas at 10%, followed by soybeans at 8.5%, and crude oil, gold and copper all at 8.0%. Percentages decline from there, with cocoa, coffee, gasoil, lean hogs and silver each having the smallest 2% weighting.
While Barclays’ commodity strategy is brand new, the firm says it has shown hypothetical results back-tested to February 2000.
This product will appear shortly in Recent Additions (US).
