Risk for Futures-Type ETFs

Futures-Type ETFs

Futures-Type ETFs refer to ETFs tracking indicators that use prices of futures contracts or those to conduct investment in mainly futures contracts.

A Closer Look at Futures-Type ETF Investment

Futures prices vary depending on contract months (settlement cycle for futures) (*). The reason is time value. The time value shows expectation for price movements during the period from the present to a contract month. Storage costs, etc. (cost of carry) are also reflected in the price for commodity futures.

In general, because the further away you are from the contract month, the more uncertain the future prices will be, the time value becomes larger and futures prices become higher. Situations where the futures price is higher in a deferred contract are called contango; whereas, situations where the futures price is lower in a deferred contract (meaning that prices in the near-term contract are higher than those in the deferred contract) are called backwardation.
Such factors may lead to gains and losses associated with the transfer of a contract month to the next contract month or later (rollover) in futures-type ETFs.

Particularly, commodities futures or volatility index futures, including Nikkei 225 VI Futures, tend to veer toward contango. Futures-type ETFs that use such futures prices may reduce in price with repeated rollover. Thus, mid- and long-term investment warrants attention.

  • Options contracts and futures contracts expire on a certain month. The expiration month is called a contract month.

Let's look at the price of each contract month of VIX Index futures as of December 3, 2014. You will find that contango occurs where a futures price can be higher in the deferred contract. Assume that there are no changes in the futures price.

Typical VIX futures indices are calculated by indexation of earnings ratio where the first month futures contracts are sold; the second month futures contracts are purchased on a regular basis; and, the remaining days are maintained for a certain period. This means that repeated rollovers where low-priced near-term futures contracts are sold (ex., the second month futures contract is sold at USD 14.25) and high-priced deferred futures contracts are purchased (ex., the second month futures contract is purchased at USD 15.65) occur. In this situation, VIX futures indices will constantly reduce in price against the relevant VIX index. The impact of time value of futures tends to become greater than that of contract months in near-term contracts.
Thus, the reduction of futures indices pegged to time value tends to be larger in the VIX Short-Term Futures Index managed in near-term contracts than that of the VIX Mid-Term Futures Index managed in deferred contracts.

ETFs tracking indicators that use prices of futures contracts or those to conduct investment in mainly futures contracts

Below are Futures-type ETFs listed on TSE*. The characteristics of each ETF are disclosed in the securities registration statements of the ETFs and on the websites of asset management companies. Investors should remain conscious of this information when investing.

  • Investment status in futures trading comes from statutory disclosure documents or other published material, etc. referenced by TSE. For more information, please consult an asset management company.

Commodity Futures

One ETF Gold (1683, Asset Management One) *In Japanese only
Simplex WTI ETF (1671, Simplex AM)
NEXT FUNDS Nikkei-TOCOM Platinum Index Linked Exchange Traded Fund (1682, Nomura AM)
NEXT FUNDS NOMURA Crude Oil Long Index Linked Exchange Traded Fund (1699, Nomura AM)
S&P GSCIⓇ Energy & Metals Capped Component 35/20 THEAM Easy UCITS ETF Class A USD Unit (1327, BNP Paribas AM)
WisdomTree Broad Commodities (1684, WisdomTree Management Jersey Limited)
WisdomTree Energy (1685, WisdomTree Management Jersey Limited)
WisdomTree Industrial Metals (1686, WisdomTree Management Jersey Limited)
WisdomTree Agriculture (1687, WisdomTree Management Jersey Limited)
WisdomTree Grains (1688, WisdomTree Management Jersey Limited)
WisdomTree Natural Gas (1689, WisdomTree Management Jersey Limited)
WisdomTree WTI Crude Oil (1690, WisdomTree Management Jersey Limited)
WisdomTree Gasoline (1691, WisdomTree Management Jersey Limited)
WisdomTree Aluminium (1692, WisdomTree Management Jersey Limited)
WisdomTree Copper (1693, WisdomTree Management Jersey Limited)
WisdomTree Nickel (1694, WisdomTree Management Jersey Limited)
WisdomTree Wheat (1695, WisdomTree Management Jersey Limited)
WisdomTree Corn (1696, WisdomTree Management Jersey Limited)
WisdomTree Soybeans (1697, WisdomTree Management Jersey Limited)

Volatility Index Futures

KOKUSAI S&P500 VIX SHORT-TERM FUTURES INDEX ETF (1552, Mitsubishi UFJ Kokusai AM) *In Japanese only

Other

Futures-type ETFs are tagged as "Futures Type" in the list.

Listed Issues