London firm expected to roll out more U.S. ETFs

Mon Apr 5, 2010 1:50pm EDT

* ETF Securities Ltd garnered over $1.3 bln in U.S.

* Analysts expect more commodity funds from firm

* Platinum ETF most popular so far, with $521 mln

By Aaron Pressman

BOSTON, April 5 (Reuters) - Exchange-traded fund manager ETF Securities, which oversees about $17 billion in assets worldwide, is expected to extend its U.S. offerings beyond four precious metals funds into a wide variety of other commodities later this year, analysts and investors said.

The London-based firm has garnered almost $1.3 billion from U.S. investors in its months-old metal-based funds so far.

"They've had considerable success in Europe and they intend to bring forward more products for the U.S.," Paul Justice, associate director for ETF research at Morningstar, said.

ETF Securities Chairman Graham Tuckwell said he is considering future products for the United States. "I always knew the U.S. market was a good one to be in," he told Reuters in a telephone interview. Additional funds are "absolutely something we're thinking of."

The firm has yet to file with the U.S. Securities and Exchange Commission for any more funds and Tuckwell declined to get more specific.

Tuckwell, 53, helped bring the first gold ETF to market in 2003 with the Australian Gold Council. The former investment banker formed ETF Securities in 2005 to focus solely on exchange-traded products.

While the first four U.S. funds from ETF Securities own stockpiles of precious metals like gold and platinum held in vaults, additional funds would likely get exposure to other commodities by owning futures contracts.

On the London Stock Exchange, the firm runs funds linked to all manner of commodities futures contracts including cocoa, hogs and copper.

Despite the array of commodity ETFs already trading in the United States, some gaps remain, investors said.

Roger Nusbaum, chief investment officer at Your Source Financial who frequently buys ETFs for clients, said he would be interested in funds linked to prices of lumber and palm oil, for example.

"Lumber seems like an obvious gap to me," Nusbaum said. "Palm oil could be a great proxy for (investing in) Southeast Asia."

New products could also succeed with lower fees, Morningstar's Justice said.

ETF Securities' silver fund has garnered $129 million and its gold fund is worth $366 million, despite popular alternatives from State Street Corp (STT.N) and BlackRock Inc's (BLK.N) iShares unit.

The ETFS Physical Swiss Gold Shares fund (SGOL.P), launched in September, carries an expense ratio of 0.39 percent versus 0.40 percent for State Street's SPDR Gold Shares fund (GLD.P).

The ETFS Physical Silver Shares fund (SIVR.P), launched last July, charges 0.30 percent versus 0.50 percent for the iShares Silver Trust fund (SLV.P).

ETF Securities emphasizes that its gold fund keeps its holdings in a Swiss vault, which some investors may consider more secure than competitors' holdings stored in London or the United States. "They're marketing to the conspiracy theorists which does appeal to a portion of gold investors," Morningstar's Justice said.

The firm's most popular new U.S. offering is the ETFS Physical Platinum Shares fund PPLT.P, which was launched in January and is already worth $521 million. The fund benefited from the lack of any prior ETF focusing on the metal at a time when platinum prices have been rising steadily.

The ETFS Physical Palladium Shares fund PALL.P, which also debuted in January, had early success thanks to a lack of competing funds and is now worth $270 million.

Palladium prices hit a two-year high on Monday, with physical buying due to strong industrial and investment demand also boosting sister metal platinum to its highest level since August 2008.

"The uniqueness of physical platinum and palladium are a draw," money manager Nusbaum said. (Reporting by Aaron Pressman; Editing by Richard Chang)

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