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Hong Kong's first crude oil ETF. Are you seeking for a convenient way to invest in the crude oil market?
Get started with SAMSUNG S&P GSCI Crude Oil ETF.

Tracking the oil “spot” price (meaning the prices quoted for immediate payment and delivery of particular physical commodity) implies physical ownership of the commodities and a number of associated costs such as delivery, storage and insurance.


The oil “spot” price which investors see on Bloomberg or quoted in the news is by definition not an investable return. As a result, investors throughout the world, and also ETFs, use liquid and standardized futures contracts to get exposure to the oil market. Standardised futures contracts imply delivery costs of pre-specified deliverable grades, at a particular location.

Overview about the Crude-Oil Market

Crude oil is a naturally occurring, unrefined petroleum product composed of hydrocarbon deposits and other organic materials. Crude oil can be refined to produce usable products such as gasoline, diesel and various forms of petrochemicals. It is a nonrenewable resource, also known as a fossil fuel, which means that it can't be replaced naturally at the rate we consume it and is therefore a limited resource 

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What index does the product use?

The Sub-fund uses "S&P GSCI Crude Oil Excess Return Index" ("Excess Return" does not mean any additional return on the Sub-Fund's performance), which tracks the performance of the WTI Futures Contracts with the closest expiration date (the "nearest contract") as benchmark. The index calculates the return from investing in the nearest WTI futures contract and rolling them forward each month. It serves as benchmark to a wide array of financial products in various markets including the US, Korea, UK, Australia and Taiwan. S&P500 is considered by many a reputable index provider and its commodities indices are widely used by many around the world. The index was launched on 1 May 1991 and had a base value of 100 as at 7 January 1987. 

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What are some of the effects of roll-over on the index and the ETF price?

As the WTI Futures Contracts included in the Index come to expiration, they are replaced by contracts that have a later expiration. For example, a contract purchased and held in September may specify an October expiration. As time passes, the contract expiring in October is replaced by a contract for delivery in November. This is accomplished by selling the October contract and purchasing the November contract. This process is referred to as "rolling".The rolling keeps an investor fully invested. The roll return will be positive when the futures curve is downward sloping ("backwardation") or negative when the futures curve is upward sloping ("contango")

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When does the Sub-fund have roll-over trading? And how does it take place?

The Index includes provisions for the replacement (also referred to as "rolling") of the nearest contracts as they approach maturity. The rolling of a nearest contract occurs over a 5 day period every month, commencing on the 5th S&P GSCI Business Day of the month, and ending on the 9th S&P GSCI Business Day of the month.   For example, on 5 May 2016 (4th business day of the month), the Sub-Fund will hold 100% June 2016 contracts, which is the first nearby contract. For the avoidance of doubt, the last trading day of the first nearby contract is the 4th business day prior to the 25th calendar day each month. On 6 May 2016, which is the first day of roll-over being the 5th business day of the month, the Sub-Fund will hold 20% July 2016 contracts and 80% June 2016 contracts.  On 9 May 2016, the Sub-Fund will hold 40% July 2016 contracts and 60% June 2016 contracts. In the following two business days, the Sub-Fund will increase its holding of July 2016 contracts by 20% each business day while decreasing its holding of June 2016 contracts by the same amount until, at the end of 12 May 2016, which is the final day of the roll-over (9th business day of the month), the Sub-Fund will hold 100% July 2016 contract. 

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What are the implications of contango and backwardation?

"Contango" is the process whereby near-month futures are cheaper than those expiring further into the future, creating an upward sloping curve for futures prices over time (i.e. Futures Price > Spot Price at contract maturity). In a contango environment, an investor who is long futures may experience "negative roll yield" if the contract is rolled after the futures price moves downward to converge with the expected spot price. Even if the commodity appreciates, the investor holding long futures may experience a loss. "Backwardation" is opposite of contango, when near-month futures are more expensive than those expiring further into the future (i.e. Future Price < Spot Price at contract maturity). In a backwardation environment, an investor who is long futures may experience "positive roll yield" if the contract is rolled after the futures price rises to converge with the expected spot price. Even if the commodity appreciates, the investor holding long futures may experience no loss.WTI crude oil has at times in the past traded in contango due to material storage costs of oil, as well as high demand of crude oil. Because roll yields are considered in the calculation of the Index, the presence of contango in the commodity markets could result in negative "roll yields", which could adversely affect the level of the Index.   Contango and/or backwardation are caused by many factors such as:Carrying CostsIt consists of financial, storage, and insurance costs which are required to store the relevant commodity. Some commodities, such as natural gas and crude oil, are known for exhibiting steep contango over time as the carrying costs associated are relatively high.Market supply and demand of the delivery monthE.G. For agricultural products, during September in the harvest season when shipment of the harvests takes place, the expected increase of supply influences the drop in price. If the expected supply is to increase, backwardation occurs where futures price is lower than the spot price.Convenience yieldIt refers to the non-monetary earnings from raw material inventoryIrregular market movementsAn inverted market, the holding of an underlying good or security may become more profitable than owning the contract or derivative instrument, due to its relative scarcity versus high demand  

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Any factors leading to contango or backwardation?

Contango and/or backwardation are caused by many factors such as:Carrying CostsCarrying costs consist of financial, storage, and insurance costs which are required to store the relevant commodity. Some commodities, such as natural gas and crude oil, are known for exhibiting steep contango over time as the carrying costs associated are relatively high compared with other commodities.Market supply and demand of the delivery monthFor agricultural products, during September in the harvest season when shipment of the harvests takes place, the expected increase of supply influences the drop in price. If the expected supply is to increase, backwardation occurs where futures price is lower than the spot price.Convenience yieldConvinience yield refers to a benefit or premium with  holding raw material inventory, rather than the contract or derivative product.  It stems from the availability of timely physical delivery.  In an inverted market, the holding of an underlying good or security may become more profitable than owning the contract or derivative instrument, due to its relative scarcity versus high demand.

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Can you show an illustrated example of the effects of a roll-over?

Here is a simple step-by-step Contango example using the table below:   Day 0  the ETF enters into the 1st nearby futures contract at the level of 100. 1 month later from Day 0  the ETF closes out the position by selling the 1st nearby futures contract at 110 then enters into the 2nd nearby futures contract at 113, i.e. the ETF has a negative roll yield of -3 from this rollover trade. 2 month later from Day 0  the ETF closes out the position of selling 2nd nearby futures contract at 115. Calculate the ETF profit  from Day 0   When we calculate the profit of the ETF, we must take count negative rollover yield, -3. Therefore, the profit of the ETF is 115 – 100 – 3, which is 12.     Day 0 1 month later (rollover trade) 2 months later 1st nearby futures 100 110   2nd nearby futures 102 113 115   (The table is for explanatory purpose only and prepared by Samsung Asset Management (HK Ltd.)

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What are the differences between Spot and S&P GSCI Crude Oil Index ER?

As the S&P GSCI Crude Oil  Index ER(Excess Return does not mean any additional return on the Sub-Fund's performance) is based upon WTI Futures Contracts but not on physical WTI crude oil, the performance of the Index may differ from the current market or spot price performance of the WTI crude oil. The price movements of a futures contract are typically correlated with the movements of the spot price of the referenced commodity, but the correlation is generally imperfect and price movements in the spot market may not be reflected in the futures market (and vice versa). For example:    During the one-year period from 1 January 2009 to 31 December 2009, the Index underperformed the spot price of WTI crude oil by 71% (the level of the Index increased by 7%, while the spot price of crude oil increased by 78%).Large differences between the spot price and the futures price can exist because the market is always trying to look ahead to predict what prices will be. Futures prices can be either higher or lower than spot prices, depending on the outlook for supply and demand of the asset in the future. You can find historical performance of Spot and ER indices at this link

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