* Julius Baer attracts $14 mln in new physical metal funds
* Banks such as Credit Suisse offer physical metal deals
* No launch date for ETF copper funds from JPMorgan,
By Eric Onstad
LONDON, Oct 11 Investors are finding alternative
routes to get exposure to physical industrial metals such as
copper and zinc despite the delayed launch of two big U.S.
New funds sponsored by Swiss private bank Julius Baer
have accumulated assets of over $14 million in less
than two weeks after their launch while banks including Credit
Suisse are offering physical metals to investors.
Some pension funds are keen on physical metal because they
are prohibited from buying futures while other investors regard
physical assets as less correlated to other financial markets
and help diversify their portfolios.
No launch dates, however, have been announced by the world's
largest money manager, BlackRock, and Wall Street bank
JPMorgan Chase & Co for long-planned physical exchange
traded funds (ETFs) in copper after years of controversy.
Critics, which include industrial users, have said the funds
will inflate prices and squeeze supplies by removing a big chunk
of metal from the market.
Existing physical metals funds by London-based ETF
Securities have struggled to gain traction, mainly due to high
storage costs, but Julius Baer hammered out a deal with trading
houses that cut those expenses.
Buying physical base metals for long-term exposure, rather
than for financing or "cash-and-carry" as it is also known, is a
viable alternative to commodity index exposure to the sector,
said Kamal Naqvi, head of EMEA commodity sales and global head
of metals trading at Credit Suisse in London.
"If you think the market is in surplus and contango
entrenched for the foreseeable future but there is a good
long-term story, like in aluminium or zinc, it may make sense to
own the physical metal. The other thing it does is eliminate
counter-party risk," he added.
A market is in contango when prices in the future are higher
than current ones.
Such transactions can be viable through deals with trading
groups which cut storage costs by using so called "off-warrant"
While holding physical metal in LME-certified warehouses
involves rental charges of over 40 cents per tonne per day,
off-warrant deals in non-LME facilities have charges at a third
of that level, industry sources say.
It also appeals to investors who value privacy and are wary
of ETFs, which are listed and regularly provide data on
additions to and liquidations from the funds.
JULIUS BAER FUND LAUNCH
Investors have also started to invest into the Julius Baer
(JB) Industrial Metals Funds in aluminium, copper, nickel and
zinc, which were launched on Oct. 1.
The four funds so far have $14.3 million in assets and there
has been further interest, Stephan Mueller, head of product
management and development at Swiss & Global, told Reuters.
Swiss & Global, a manager for Julius Baer, is part of GAM
Holding, Switzerland's largest listed asset manager
with assets of $126 billion.
The assets may have been higher except for the uncertainty
with the U.S. fiscal situation, Mueller said.
"For the moment, the U.S. government shutdown is throwing a
shadow over all of our funds. It's quite a poor moment to take
decisions for them (clients), so they're hesitating."
Currently, financial investments in the funds are spread
fairly evenly across the four metals with copper and aluminium
the highest at 28 percent and 27 percent respectively while the
other two each have 22 percent.
Mueller is aiming to grow the combined funds' assets to $150
million to $300 million within six to nine months. "We're
targeting a similar growth pattern which we experienced in
platinum and palladium."
Swiss & Global launched Julius Baer physical funds in
platinum and palladium in 2010, which have assets of $119
million and $138 million respectively.
Swiss & Global has cut costs to store base metals through an
agreement with commodity trader Trafigura to place metal in
under-used warehouses at cheaper rents.
It hopes the structure enables the funds to avoid the
controversy that has swirled around the planned BlackRock and
JPMorgan physically-backed funds over the potential impact on
key raw materials supplies.
Both the BlackRock and JPMorgan copper ETFs have been
approved by the U.S. Securities and Exchanges Commission, but
neither has launched following objections by industrial users.
BlackRock and JPMorgan declined to comment.
There is still disquiet about the impact of physical funds,
especially in copper. "We're nervous about an ETF in copper.
Copper actually is supply constrained so you could conceivably
create problems in the real world by hoarding copper," said Doug
Hepworth, executive vice president at Gresham Investment
Management in New York.