THREADNEEDLE (LUX)-ENHANCED COMMODITIES AGH GBP

Investment Process

Because the fund qualifies as a UCITs product the managers cannot invest directly in the futures curve. Instead they use swap contracts which are traded daily at the market close to avoid slippage and settle fortnightly to reduce counterparty risk. Currently they have two counterparties, Goldman Sachs and JPM. The swaps traded are excess return swaps and the arrangements with these banks are such that the managers have flexibility to effectively invest along the futures curve. This allows them to generate positive returns through changes in the structure of the yield curve. Over the long term this should contribute about one-third of returns to the fund. The structure of the yield curve is one factor driving returns. The others are fundamental views on each commodity, seasonality and technical factors. The fund can invest across all 22 different commodities in the index, plus 6 more which encompasses Metals, Energy, Agriculture and Softs. The Bloomberg index has a much lower weight to energy than the S&P GSCI index, which means it is normally less volatile. The fund is long only and ungeared.