Liontamer has launched another new fund targeting commodities.
Combi 6 is trust number 33 from the Liontamer stable (or should that be den?).
In the usual style of Liontamer funds, it draws together 19 commonly traded commodities into an index of their own making.
When the fund closes on October 16 the index will be set at zero.
The index will be denoted in United States dollars but will not be exposed to currency fluctuations between the US and New Zealand dollars.
The index will be made up of five sectors: Energy (33%), agriculture (29.2%), industrial metals (20.3%), precious metals (10.8%) and livestock (6.7%). Natural gas and oil make up the majority in the energy sector; wheat, corn, soybeans and soybean oil, sugar and coffee in agriculture; aluminium, copper and zinc in industrial metals; gold and silver in precious metals; and cattle and pigs in livestock.
There are two funds being offered under the same trust name.
The first fund, which is fully protected if held to maturity, will benefit from 90% of any positive movement in the index.
The second fund, which has no capital protection, will benefit from 130% of any positive rise in the index but will be subject to any fall in the index by 100%.
In other words, an investment in the protected fund will not fall below its original value if held to maturity, but the unprotected fund will be as volatile as the index so determines.
The minimum investment for both funds is $5000 and the protected fund is for a term of six years and the unprotected, five years.
The investment statement has some examples of investing $10,000.
If the index rises 25% over the period then protected investors will receive $12,250 and unprotected $13,250, at maturity.
If the index has fallen 25% at maturity then protected investors receive their $10,000 back but unprotected investors will only receive $7500.
Investors should be aware this is a synthetic product in that your funds are not directly invested in commodities.
How it works is that Liontamer takes your funds and invests them in financial instruments sold by Barclays Bank at the start of the period.
At maturity, Liontamer will receive a payment back from Barclays when the instruments are sold.
Recently, there was an article that suggests commodity investing would be a good hedge against inflation.
While inflation is not apparent at the moment (in fact, several economies are close to deflation), it is expected to be a problem two to three years hence due to the amount of free money being generated to fix the economic problems in countries such as the United States.
Michael Coote, from Tower, which has a global commodities fund, is quoted as saying when we come out of the other side of a recession, increased demand will meet a supply bottleneck and that will put upward pressure on commodity prices.
Apart from Liontamer and Tower, there are two other commodity funds available to investors in New Zealand.
However, Liontamer is the simplest to invest in and the only one with a capital protection option.
The others require a larger initial investment unless being part of a group investment from a wrap platform.
The Liontamer entry fee is 3% of funds invested but can be fully rebated by an adviser.
Early-bird interest is paid to those who invest before October 16. Early exit is available but a fee of 2% will be charged and in the case of the protected funds the maximum payable regardless of current index level at exit is $1 if exceptional circumstances (death) cannot be shown.
Unprotected funds will also be subject to a 2% early exit fee which could be above or below the initial amount invested.
There are no management fees by Liontamer to the trust as they are paid by Barclays.
See your financial adviser for further detail on commodity investing.
• Peter Smith is a certified financial planner and is the principal of Peter Smith Financial Services Ltd, Dunedin.
Email: finance@petersmith.co.nz
A disclosure document is available on request and free of charge.
