Last Updated : 05 May 2009 at 18:00 IST

ETFS Short Lean Hogs surge on WHO swine alert

SHARE THIS STORY

Commodity Online
LONDON: The pandemic alert for swine flu by World Health Organisation (WHO) has led to a surge in volumes and returns in Short Lean Hogs ETC of ETF Securities Ltd raising it to the second highest level last Wednesday.

ETFS Short Lean Hogs (SLHO) is up 9% since Friday 24 April 2009 and saw trading volumes up 207% last Tuesday compared to their average since the product inception in March 2008. The sharp increase in interest in SLHO indicates that a growing number of investors are using Short ETCs to benefit from an anticipated fall in demand for lean hogs on the swine flu outbreak.US pork import bans have been enacted by Russia, China, the Philippines, Serbia, Kazakhstan and South Korea since the end of last week.

This week's rise in SLHO caps a 42% rise since the beginning of September, putting SLHO in the top 5 short ETCs by returns YTD. SLHO has now outperformed the MSCI World Index by 74% since the start of September 2008. Beyond the initial impact of credit crisis deleveraging, lean hog prices have come under sustained pressure as farmers have culled pigs, increasing supply as high feed costs and falling returns have pressured margins.

The popularity of short ETCs also reflects the fact that many 'long only' institutional investors are unable to 'sell short' as a result of their mandates and investment regulations. Short ETCs allow 'long' funds to go long on a security providing an inverse return to the underlying asset. Short ETCs earn minus one times (- 1x) the daily change in the index (before fees and interest). For example, if the underlying index falls by 2% in a day, a Short ETC will increase by 2% and vice versa.

In addition to a healthy surge of inflows into its Short Lean Hogs ETC, ETF Securities continues success by picking up the 'Most Innovative ETF Hybrid Product - Europe, 2009', for the second time, at the 5th Annual Global ETF Awards in New York as voted for by readers of www.exchangetradedfunds.com . This is the fifth accolade ETFS has received over the past few years for product innovation, having previously received this award in 2006 alongside, 'Most Innovative Product 2005 OILB', by www.exchangetradedfunds.com, 'Most Innovative Product 2006', from Investors Chronicle, and 'Product of the Year 2007', by Global Investor readers. This new award adds further to investors recognition of ETF Securities as a market leader in the ETC and ETF industry.

ETF Securities now offers more than 130 ETCs with over $10 billion in assets. The ETCs provide investors with a wide variety of investment strategies, with ETCs offering physical, long, forward, leveraged and short exposure to all commodity sectors. ETCs are simple to access as they are traded in four currencies (EUR, USD, GBP and AUD) and listed on six major exchanges globally including the London Stock Exchange, NYSE-Euronext Paris, NYSE-Euronext Amsterdam, Deutsche Börse, Borsa Italiana and the Australian Securities Exchange, according to a press release.

Daniel Wills, Senior Analyst said: "Investors have been able to capitalize heavily on recent market volatility following the outbreak of the swine flu virus worldwide through short livestock products such as ETFS Short Lean Hogs. A situation of oversupply in many livestock markets has provided sustained returns growth to short ETC investors following on from the immediate impact of the credit crisis escalation in September of 2008. In the longer term, a sharp reduction in stock numbers could provide the platform for renewed return growth in long livestock ETCs as recent livestock liquidation leaves farmers with a thinner cushion to accommodate structural food demand growth from emerging markets."