USCF To Begin Trading The United States Metals Index Fund ETF Tuesday, June 19, 2012
USCF has announced that they will begin trading The SUnited States Metals Index Fund (NYSEARCA:USMI) Tuesday, June 19, 2012. The investment objective of USMI is for the daily changes in percentage terms of its Units’ NAV to reflect the daily changes in percentage terms of the SummerHaven Metals Index Total Return (“Metals Index”), less USMI’s expenses. The Metals Index is designed to reflect the performance of a diversified group of metals. The Metals Index is owned and maintained by SummerHaven Index Management, LLC (“SummerHaven Indexing”) and calculated and published by the NYSE Arca. Futures contracts for the metals in the Metals Index that are traded on the New York Mercantile Exchange (“NYMEX”), London Metal Exchange (“LME”) and Commodity Exchange Inc. (“COMEX”) are collectively referred to herein as “Eligible Metals Futures Contracts.” The Metals Index is comprised of 10 Eligible Metals Futures Contracts that are selected on a monthly basis based on quantitative formulas developed by SummerHaven Indexing. The Eligible Metals Futures Contracts that at any given time make up the Metals Index are referred to herein as “Benchmark Component Metals Futures Contracts.”
USMI will seek to achieve its investment objective by investing to the fullest extent possible in the Benchmark Component Metals Futures Contracts. Then if constrained by regulatory requirements, such as those described in “What are Futures Contracts? — Impact of Position Limits, Accountability Levels, and Price Fluctuation Limits,” or in view of market conditions, USMI will invest next in other Eligible Metals Futures Contracts, and finally to a lesser extent, in other exchange traded futures contracts that are economically identical or substantially similar to the Benchmark Component Metals Futures Contracts if one or more other Eligible Metals Futures Contracts is not available. When USMI has invested to the fullest extent possible in exchange-traded futures contracts, USMI may then invest in other contracts and instruments based on the Benchmark Component Metals Futures Contracts, other Eligible Metals Futures Contracts or the metals included in the Metals Index, such as cash-settled options, forward contracts, cleared swap contracts and swap contracts other than cleared swap contracts. Other exchange-traded futures contracts that are economically identical or substantially similar to the Benchmark Component Metals Futures Contracts and other contracts and instruments based on the Benchmark Component Metals Futures Contracts, are collectively referred to as “Other Metals- Related Investments,” and together with Benchmark Component Metals Futures Contracts and other Eligible Metals Futures Contracts, “Metals Interests.” For more information on the composition of the Metals Index and selection of the Benchmark Component Metals Futures Contracts, see the section of this prospectus entitled “What is the Metals Index?”
The trading advisor for USMI is SummerHaven Investment Management, LLC (“SummerHaven”). The Sponsor expects to manage the investments of USMI directly, using the trading advisory services of SummerHaven for guidance with respect to the Metals Index and the Sponsor’s selection of investments on behalf of USMI. The Sponsor is also authorized to select futures commission merchants to execute transactions in Benchmark Component Metals Futures Contracts and Other Metals-Related Investments on behalf of USMI. The Sponsor, SummerHaven Indexing, and SummerHaven are not affiliated with a broker-dealer and are subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the Metals Index or the portfolio of USMI.
The Metals Index is a metal sector index designed to broadly represent industrial and precious metals while overweighting the components that are assessed to be in a low inventory state and underweighting the components assessed to be in a high inventory state. The Metals Index consists of six (6) base metals and four (4) precious metals. The base metals are aluminum, copper, zinc, nickel, tin, and lead. The precious metals are gold, silver, platinum, and palladium. Each metal is assigned a base weight based on an assessment of market liquidity and the metal’s overall economic importance. The Metals Index is rules-based and is rebalanced monthly based on observable price signals described above. Such formulas are not subject to adjustment based on other factors.
In order for a hypothetical investment in Units to break even over the next 12 months, assuming an initial selling price of $25.00 per Unit, the investment would have to generate a 1.16% return. For more information, see “— Breakeven Analysis.”
The Sponsor endeavors to place USMI’s trades in Metals Interests and otherwise manage USMI’s investments so that “A” will be within plus/minus 10 percent of “B,” where:
- A is the average daily percentage change in USMI’s NAV for any period of 30 successive NYSE Arca trading days as of which USMI calculates its NAV; and
- B is the average daily percentage change in the Metals Index over the same period.
The Sponsor believes that market arbitrage opportunities will cause USMI’s Unit price on the NYSE Arca to closely track USMI’s NAV per Unit. The Sponsor believes that the net effect of this expected relationship and the expected relationship described above between USMI’s NAV and the Metals Index will be that the changes in the price of USMI’s Units on the NYSE Arca will closely track, in percentage terms, changes in the Metals Index, less USMI’s expenses.
USMI will invest in Metals Interests to the fullest extent possible without being leveraged or unable to satisfy its expected current or potential margin or collateral obligations with respect to its investments in Metals Interests. The primary focus of the Sponsor is the investment in Metals Interests and the management of USMI’s investments in Treasuries, cash and/or cash equivalents.
The Sponsor will employ a “neutral” investment strategy for USMI intended to track the changes in the Metals Index regardless of whether the Metals Index goes up or goes down. USMI’s “neutral” investment strategy is designed to permit investors generally to purchase and sell USMI’s Units for the purpose of investing indirectly in the metals market in a cost-effective manner, and/or to permit participants in the commodities or other industries to hedge the risk of losses in their metals-related transactions. Accordingly, depending on the investment objective of an individual investor, the risks generally associated with investing in the commodities market and/or the risks involved in hedging may exist. In addition, an investment in USMI involves the risks that the changes in the price of USMI’s Units will not accurately track the changes in the Metals Index, and that changes in the Metals Index will not closely correlate with changes in the spot prices of the metals underlying the Benchmark Component Metals Futures Contracts.
USMI creates Units only in Creation Baskets and redeems Units only in blocks of 50,000 Units called Redemption Baskets. Only Authorized Purchasers may purchase or redeem Creation Baskets or Redemption Baskets, respectively. An Authorized Purchaser is under no obligation to create or redeem baskets, and an Authorized Purchaser is under no obligation to offer to the public Units of any baskets it does create. Baskets are generally created when there is a demand for Units, including, but not limited to, when the market price per Unit is at a premium to the NAV per Unit. Authorized Purchasers will then sell such Units, which will be listed on the NYSE Arca, to the public at per Unit offering prices that are expected to reflect, among other factors, the trading price of the Units on the NYSE Arca, the NAV of USMI at the time the Authorized Purchaser purchased the Creation Baskets and the NAV at the time of the offer of the Units to the public, the supply of and demand for Units at the time of sale, and the liquidity of the Benchmark Component Metals Futures Contracts and Other Metals-Related Investments. Baskets are generally redeemed when the market price per Unit is at a discount to the NAV per Unit. Retail investors seeking to purchase or sell Units on any day will effect such transactions in the secondary market, on the NYSE Arca, at the market price per Unit, rather than in connection with the creation or redemption of baskets.
There is no specified limit on the maximum amount of Creation Baskets that can be sold. At some point, position limits on certain Benchmark Component Metals Futures Contracts or Other Metals-Related Investments may practically limit the number of Creation Baskets that will be sold for USMI if the Sponsor determines that the other investment alternatives available to USMI at that time will not enable it to meet its stated investment objective.
Other than to address monthly changes in the Benchmark Component Metals Futures Contracts, in managing USMI’s assets, the Sponsor does not use a technical trading system that automatically issues buy and sell orders. Instead, each time one or more baskets are purchased or redeemed, the Sponsor will purchase or sell Metals Interests with an aggregate market value that approximates the amount of cash received or paid upon the purchase or redemption of the basket(s).
For the prospectus click: HERE