Be careful with this ETF, which has fallen by 40% since the beginning of 2023. Let’s study its main characteristics and the reasons for such a fall.
There are economic contexts in which a particular trading asset emerges because of its extremely negative performance, influenced by surrounding events. In this case, an Exchange Traded Commodity (ETC) has attracted the attention of analysts for its 40% loss since the beginning of the year. This sudden drop has raised concerns and questions about the reasons behind this sharp decline in value. In this article, we will explore in detail the reasons for the decline of this ETF and analyze the main characteristics.
ETC WisdomTree Nickel: A Comprehensive Analysis
The WisdomTree Nickel ETC is an investment instrument that seeks to replicate the performance of the Bloomberg Nickel Index, which in turn reflects the price of nickel futures contracts. This manages assets of approximately EUR 134 million. This indicates that the fund has a significant size, which can be an advantage for investors in terms of liquidity and access to markets.
Structure and Replication
This ETC uses a swap-based synthetic replication structure to track the performance of the Bloomberg Nickel Index. Synthetic replication involves the use of derivative contracts such as swaps to gain exposure to the underlying index. This choice of structure may involve risks associated with the use of derivatives, but it also offers greater flexibility in portfolio management.
Synthetic Expenditure Indicator (TER)
The Effective Expenditure Rate (TER) of the WisdomTree Nickel ETC is 0.49% per annum. This TER represents the total costs associated with investing in the ETC, including management and synthetic replication charges. However, the TER is relatively low compared to some other similar products, making the ETC potentially more attractive to investors interested in nickel.
Exchange Risk
The WisdomTree Nickel ETC does not offer currency hedging, meaning investors are exposed to currency risk between the Euro (EUR) and the US Dollar (USD). This can impact your returns, especially if there are significant fluctuations in exchange rates between these two currencies.
Historical Performance
One of the key factors in evaluating an ETC is its historical performance. The WisdomTree Nickel ETC has experienced significant fluctuations in returns over time. For example, over the past year, the ETC has posted a loss of 41.23%, while over the past five years, it has posted a gain of 49.33%. It is important to note that nickel is known for its volatility, which can contribute to such variations in returns. The ETC’s historical performance may be affected by multiple factors, including market conditions, changes in nickel prices, and portfolio management decisions.
Risk and volatility
Volatility is a crucial element in assessing the risk associated with an ETC. WisdomTree Nickel ETC has a 1-year volatility of 37.25%, which is definitely high. This may result in significant fluctuations in the value of the fund in the short term and should be taken into consideration by investors. Furthermore, it is important to note that the ETC has suffered maximum drawdowns, with a maximum loss of -47.93% over the past year, -65.12% over the past three years, and -85.57% since its launch. These numbers indicate the potential risk of significant losses for investors, especially in times of adverse market conditions.
Geographical Diversification
The WisdomTree Nickel ETC is listed on several exchanges, including XETRA, the Italian Stock Exchange, and the London Stock Exchange. This geographic diversification could offer investors greater accessibility and liquidity.
Historical Annual Returns:
- In 2022, the ETC recorded a notable increase of 53.34%, likely reflecting the rise in nickel prices that year.
- In 2021, the ETC achieved a return of +34.17%.
- In 2020, the return was +5.64%.
- In 2019, the ETC recorded a return of +33.74%.
Why has nickel fallen since the beginning of the year?
The nickel market has fallen since the beginning of the year due to several factors. Initially, a huge excess Indonesian production outstripped global demand, leading prices to plummet 21% from the previous year.
The International Nickel Study Group (INSG) has forecast a surplus of nickel supply over demand of as much as 239,000 tonnes, the largest in a decade. While global demand for nickel is expected to grow in 2023, it will likely not be enough to absorb Indonesia’s abundant production.
However, electric vehicles are becoming a major consumer of nickel, but growing production could still outstrip demand from the EV sector. It should be noted that the supply of Class I nickel, used primarily in the EV sector, has declined by 28% this year, while the supply of Class II nickel, containing less than 99.8% nickel, continues to grow quickly.
| Disclaimer The information and considerations contained in this article should not be used as the sole and principal basis on which to make investment decisions. The reader maintains full freedom in his own investment choices and full responsibility in making them since he alone knows his risk appetite and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation for public savings. |
Original article published on Money.it Italy 2023-11-18 08:10:00. Original title: Questo ETC è in caduta libera, ha perso oltre il 40% da inizio anno
