Rogers Commodity Fund Expense Ratio?

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schmoglehead
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Rogers Commodity Fund Expense Ratio?

Post by schmoglehead »

Does anyone know the Rogers Commodity Fund expense ratio?
Thanks,
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tobyjoe
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Post by tobyjoe »

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schmoglehead
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Post by schmoglehead »

Thanks, tobyjoe
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Lbill
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Post by Lbill »

I've got some concerns about RJI that perhaps someone can address. First, RJI is an exchange traded note issued by the Swedish Export Credit Corp. As an ETN, it is subject to the credit risk of the issuer. Who are they and why should I think I would want to assume that credit risk? Second, the RJI trades futures in 36 commodities. I've gotta believe that the total trading costs are much higher than competitive commodity funds that do not trade as many and would make the total cost higher. Third, the prospectus states that RJI is collaterized, but doesn't state what the collateral is - for example, DJP uses treasury notes and PCRIX uses TIPS. Since part of the total return of such funds consists of earnings on the collateral, it would be nice to know what it is and why they don't seem to publish this information. The prospectus also states that interest payments will not be made to shareholders. Does this mean that the earnings from collateral are rolled into the NAV, or that the issuer retains the earnings rather than paying them out to shareholders? Commodity ETFs and ETNS are all pretty complex and obscure, but this one seems particularly so. Buyer beware?
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Rick Ferri
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Post by Rick Ferri »

RJI is an ETN rather than an ETF. As such, there are no futures contracts and no collateral backing the investment except the credit rating of Swedish Export Credit Corp. The total return being paid by Swedish Export Credit Corp at the end of the contract will be the total return of the Rogers Index that is assumed to be collateralized in T-bills. Less fees.

All commodity total return indexes are collateralized in T-bills. The underlying total return commodities index used in PCRIX is the DJ-AIG, which is a managed index of collateralized commodity futures that calculated based on T-Bill collateral. That said, PCRIX is a 'double-barrel' fund. PIMCO basically swaps the return of T-Bills for the return of TIPS to create a potential enhancement. But that interest rate swap has nothing to do with the performance of the DJ-AIG Total Return Index.
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Lbill
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Post by Lbill »

Thanks Rick - That explantion helps. I guess this implies that there are no futures trading costs associated with commodity ETNs, correct? With an ETF, there would be futures trading costs in addition to the management fee which would make them a little more expensive than ETNs? What about the Swedish Export Credit Corp - any concerns there? Why are CCFs always collaterized with treasury notes? Lot of questions, eh?
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Post by schmoglehead »

I received this information from the Rogers fund:

It appears the expense ratio may be as high as .65+.35+.30= 1.3%

"Futures based funds report their expenses slightly different than mutual funds. The RICI® Linked has a 65 basis points management fee. On top of that is the cost of the independent administrator, start up expenses, legal, and accounting fees which are charged to the Fund as occurred.

Those additional expenses are presently running at an annualized rate of approximately 35 basis points. As the Fund grows in size, those additional expenses will decline as a percentage of the funds assets (the management fee will remain constant). Thus, investors benefit as the fund grows in size as the expenses are spread out over a larger asset base.

Lastly, the Fund incurs approximately 30 basis points in transaction costs in maintaining the futures positions as dictated by the Rogers International Commodity Index®. Few if any mutual funds disclose their trading costs and they are not included in the expense ratio commonly provided by most mutual funds.

In our opinion, the most important fact is how closely the Fund tracts the Index. The RICI® Fund’s objective is to track the RICI® Index closer than any other structured vehicle such as an ETN which entails credit risk. To date the RICI® Fund has tracked the RICI® Index at less than 65 basis points."
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Post by Lbill »

Lastly, the Fund incurs approximately 30 basis points in transaction costs in maintaining the futures positions as dictated by the Rogers International Commodity Index®. Few if any mutual funds disclose their trading costs and they are not included in the expense ratio commonly provided by most mutual funds.
I thought Rick Ferri said no futures contracts were involved in an ETN. Can someone clarify?
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Rick Ferri
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Post by Rick Ferri »

Lbill wrote:Thanks Rick - That explanation helps. I guess this implies that there are no futures trading costs associated with commodity ETNs, correct?
Correct. Assuming you buy and sell the ETN at NAV, you will get the true total return of the index for the time you held it.
With an ETF, there would be futures trading costs in addition to the management fee which would make them a little more expensive than ETNs?
Yes, slightly more expensive. Another benefit with ETNs is taxes. CCFs used in ETFS are taxed based on a combination of short-term gains, long-term gains, and you also pay ordinary income from the collateral. With ETN, there is only long-term gains, and you decided when to sell shares and take those gains. Gains are not distributed by the ETN each year.
What about the Swedish Export Credit Corp - any concerns there?
I am going to pass on that question because analyzing finance companies is not my expertise.
Why are CCFs always collateralized with treasury notes?
The pricing of futures contracts take into consideration 'the cost of carry' which is the cost associated with your borrowing cost, storage costs, insurances costs, etc. Your borrowing is assumed to be done at the T-bill rate, which is unrealistic, but that is how contracts are priced.

Here is an example: Assume you want to buy a 100 ounces of gold for July delivery. Today the spot price of gold is $925. The price you pay would for a July contract might be $940. The extra $15 is the carrying cost of the counter-party, who is the seller of the contract. It includes safe storage for the gold for three months, insurance on the gold for the period, and interest lost by the seller for not selling the 100 ounces today at $925 and investing in 3 month T-bills (this is your borrowing cost).

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Post by Rick Ferri »

Lbill wrote:
Lastly, the Fund incurs approximately 30 basis points in transaction costs in maintaining the futures positions as dictated by the Rogers International Commodity Index®. Few if any mutual funds disclose their trading costs and they are not included in the expense ratio commonly provided by most mutual funds.
I thought Rick Ferri said no futures contracts were involved in an ETN. Can someone clarify?
Perhaps this particular series are ETNs does hedge and they pass that cost onto the investors. Barclays Bank does not pass the cost of hedging onto ETN investors.
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bzboy
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Post by bzboy »

schmoglehead wrote:I received this information from the Rogers fund:

It appears the expense ratio may be as high as .65+.35+.30= 1.3%

"Futures based funds report their expenses slightly different than mutual funds. The RICI® Linked has a 65 basis points management fee. On top of that is the cost of the independent administrator, start up expenses, legal, and accounting fees which are charged to the Fund as occurred.

Those additional expenses are presently running at an annualized rate of approximately 35 basis points. As the Fund grows in size, those additional expenses will decline as a percentage of the funds assets (the management fee will remain constant). Thus, investors benefit as the fund grows in size as the expenses are spread out over a larger asset base.

Lastly, the Fund incurs approximately 30 basis points in transaction costs in maintaining the futures positions as dictated by the Rogers International Commodity Index®. Few if any mutual funds disclose their trading costs and they are not included in the expense ratio commonly provided by most mutual funds.

In our opinion, the most important fact is how closely the Fund tracts the Index. The RICI® Fund’s objective is to track the RICI® Index closer than any other structured vehicle such as an ETN which entails credit risk. To date the RICI® Fund has tracked the RICI® Index at less than 65 basis points."
May be this is about Roger's fund and not the ETN, because the ETN is a contract about the index total return with SEK and has nothing to do with how SEK tracks the index.

bz
Last edited by bzboy on Wed Apr 23, 2008 5:57 pm, edited 1 time in total.
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Lbill
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Post by Lbill »

Thanks Rick - very informative. :happy
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Post by DaveTH »

What about the Swedish Export Credit Corp - any concerns there?
It is wholly owned by the Swedish government. I've owned the fund since inception and I don't lose any sleep over it.
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schmoglehead
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Post by schmoglehead »

...more information from Rogers:

The transaction costs (futures brokerage commissions) are running approximately 30 basis points basis points and are in addition to the approximate 100 basis points current “expense ratio”.

Keep in mind that commonly referred to Expense ratios as they apply to mutual funds do NOT include commissions and are not included in the expense ratios quoted by mutual funds. Futures based funds always disclose transaction costs (the RICI® Linked fund incurs transaction costs as it must roll over the futures positions every one to thee months).

Also, since the Fund just broke escrow in May of 2007, the legal and accounting expenses including the audit have not yet been amortized over a full year so these additional expenses as a percentage of assets are higher then what they will be going forward. As the Fund continues to grow, the expense ratio will drop as the Fund expenses (Legal and accounting) tend to remain relatively the same while the total assets grow substantially.

The Fund has tracked the Index itself at less than 50 basis points since inception due to the fact that the Fund receives slightly higher interest income then that used in calculating the Index. This extra interest income has more then offset the additional expenses (which are over and above the 65 basis points management fee). The net tracking error to date of less than 50 basis points is another way to look at the net cost of the Fund in trying to achieve the returns of the actual RICI® Index.

So the "expense ratio" of this fund is 1.3 (similar to the 1.24 of the PIMCO CommodityRealRet).

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Lbill
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Post by Lbill »

(the RICI® Linked fund incurs transaction costs as it must roll over the futures positions every one to thee months).
I'm still confused because Rick Ferri said that RJI is an ETN that does not actually trade futures, but tracks the futures indices. Are you referring to RJI or to the actual RICI index itself? If you are referring to the index (RICI) this is not an expense of the RJI ETN. They state that their expense ratio is 0.75%.
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Post by schmoglehead »

I am referring to the Rogers RICI® Linked – PAM Total Index Series. I do not think this is the ETN.
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