On 6 February 2010 ABN AMRO Bank NV

Comments

Transcription

On 6 February 2010 ABN AMRO Bank NV
Global Banking & Markets
135 Bishopsgate
London EC2M 3UR
Tel: +44(0)20 7085 5000
Fax: +44(0)20 7085 0000
www.rbs.com
On 6 February 2010 ABN AMRO Bank N.V. (registered with the Dutch Chamber of Commerce under
number 33002587) changed its name to The Royal Bank of Scotland N.V. and all references in the
attached document to "ABN AMRO Bank N.V." should be read as references to
"The Royal Bank of Scotland N.V.".
The name change is not a change of the legal entity which issued your securities and it does not affect
any of the terms and conditions of your securities.
For further information on
The Royal Bank of Scotland N.V. or its holding company, ABN AMRO Holding N.V., and their financial
status please refer to the current Registration Document for ABN AMRO Holding N.V. and
The Royal Bank of Scotland N.V., which is available at http://markets.rbs.com/bparchive/ and to the
documents on file at http://www.sec.gov.
From 6 February 2010 onwards, the name ABN AMRO Bank N.V. will be used by a separate legal entity
(registered with the Dutch Chamber of Commerce under number 34334259) which will ultimately be
owned by the State of the Netherlands. Neither the new entity named ABN AMRO Bank N.V. nor the
State of the Netherlands will, in any way, guarantee or otherwise support the obligations under your
securities unless otherwise expressly stated in the terms and conditions of your securities.
The Royal Bank of Scotland plc. Registered in Scotland No.90312. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB.
Authorised and regulated by the Financial Services Authority.
The Royal Bank of Scotland N.V., established in Amsterdam, The Netherlands. Registered with the Chamber of Commerce in The Netherlands, no 33002587.
Authorised by De Nederlandsche Bank N.V. and regulated by the Authority for the Financial Markets in The Netherlands.
The Royal Bank of Scotland N.V. is an authorised agent of The Royal Bank of Scotland plc.
Commodity Certificates
The rediscovered asset class
The Royal Bank of Scotland plc (RBS) is an authorised agent of ABN AMRO in certain jurisdictions and ABN AMRO is a subsidiary undertaking (as
defined in section 1162 of the Companies Act 2006 of England and Wales) of The Royal Bank of Scotland Group plc.
2
Commodity Certificates
Diversify your portfolio with this unique asset class:
aside from the growth potential some experts see in
them, they can act as a natural hedge against both
inflation and depreciation of the USD, and they have
low correlation with equities and bonds.
The decade of commodities?
1. Bloomberg, 1 October 2008.
Stock markets have got off to a turbulent start in this new millenium. Shares are on a slippery
slope and bonds are bringing in only very low yields due to the low interest rate environment.
Diversification in the performances of shares and bonds has failed to develop. The low yields
of government bonds were not enough to balance out the fall in share prices between 2000
and 2003. Consequently investors increasingly sought alternative asset classes that could
produce attractive yields even in times of crisis. Commodities that in previous years produced
high yields thus assumed a leading role. The Rogers International Commodity Index®, which
is managed by the stock market legend and globetrotter Jim Rogers, has risen 159% since
the start of 20001.
Optimise your portfolio with commodities
During the decline of 2001 - 2003 investors
earned profits from commodities. Commodities
prices likewise perform better than equities
since the price turbulence connected to the
US subprime crisis.
Advantages
• Can be traded on the stock market daily
• Commodities investment with a built
•
The price trends of commodities have a low to negative correllation to those of shares or
bonds. They thus offer a yield that is largely independent of trends in these traditional asset
classes. Commodities have generally done well, as shown by historical data, when shares
and bonds have been disappointing. Thanks to this quality a portfolio consisting of shares
and bonds can be advantageously diversified with commodities. Hence adding commodities
to the mix reduces the downside risk profile of a portfolio consisting of shares and bonds without limiting profit opportunities.
RICI® Index vs S&P® 500 Index
300%
in currency hedge available
No reserve liability
250%
Potential risks
• Commodities prices can be very volatile
• Certificates that are not protected
•
against currency risks can be subject
to fluctuations in exchange rates
The rate of participation in the
performance of the underlying can
change over time
200%
150%
100%
50%
Sep 2003
Sep 2004
Sep 2005
Sep 2006
Sep 2007
Sep 2008
RICI Total Return Index
S&P 500 Index
Source: Bloomberg, 29 September 2008.
Note: Past results do not guarantee and are no indication of future performance.
Commodity Certificates
Commodities are a hedge against inflation
Inflation means a price rise in goods like commodities, which means that commodities offer
direct protection from it. A rise in inflation generally leads to a rise in interest rates which in turn
means a fall in bond prices. When interest rates rise shares lose their lustre. When shares fall
their dividend yields rise, reducing the interest rate gap. Consequently inflation initially puts
a strain on shares. Shares of companies which produce tangible assets benefit after a time
lapse from rising sales prices.
Investors wishing to hedge their portfolio against inflation should thus expand their asset
spectrum to include commodities. The 1970s offer a scenario that demonstrates the
advantages of investing in commodities. This period was characterised by rising inflation
and interest rates (falling bond prices) and rocketing commodity prices. Comprised of 24
commodities, the S&P® GSCITM Index rose to its then record level at the end of 1980.
Nominal and real gold price
Precious metals are in particular a
significant gauge of monetary stability.
Gold preserves its value through crisis and
inflation periods. Money is based on credit
and hence on trust. Gold supplies are in
contrast the only form of currency reserves
that have no liabilities. Gold has proved
itself as a long-term inflation hedge.
USD
2000
US, European and Japan central banks offer money at prime rates close to the rate of inflation.
This means that in many industrial countries the money supply has been increasing rapidly.
Some investors see in this a risk for future price stability and have therefore placed their bets
on commodities.
1500
1000
500
0
Inflation vs Commodity price
1900 1920 1940 1960 1980 2000
16%
960
14%
840
12%
720
10%
600
8%
480
6%
360
4%
240
2%
120
Gold price - inflation adjusted
0%
Source: Bloomberg, September 2008.
Index performance in USD
Inflation rate
Gold price
0
1970
1975
1980
1984
1989
1994
1999
2003
2008
S&P® GSCITM Commodity Index
US Inflation
Source: ABN AMRO Bank N.V., September 2008.
Note: Past results do not guarantee and are no indication of future performance. Fees and transaction costs are not
taken into account.
Note: Past results do not guarantee and are no
indication of future performance. Fees and
transaction costs are not taken into account.
3
4
Commodity Certificates
Asia’s hunger for commodities
The increasing industrialisation of emerging
markets is driving up commodities prices.
Many analysts and investors expect a persistent rise in the demand for commodities and
consequently in commodity prices as a result of emerging markets striving to catch up
economically. The co-founder of the Quantum fund and commodities expert Jim Rogers
assumes a long-term rise in commodity prices because of the hunger for commodities of
up-and-coming Asian countries. The Far East, which has a population of around three billion,
is booming. The hunger for commodities in these countries is rising with their increasing
industrialisation2.
Goldman Sach’s commodities sector index shows that energy, precious and industrial metals
have led the upswing in the commodities sector since the beginning of 2000.
2. A Bull in China: Invest Profitably in the Opening of the
Worlds Greatest Market, Jim Rogers, December 2007.
3. Bloomberg, 29 September 2008.
4. www.minerals.er.usgs.gov, USDGS, Copper Statistics
and Information, January 2008.
The rise of energy and metal prices among other things results from strong demand in Asia.
In 2008 oil prices almost hit the 150 US Dollar3 mark for the first time - this is the highest price
ever for a barrel of oil. China and India were unquestionably the leading drivers of the price.
China is one of the biggest consumers in the world of industrial metals like aluminium, copper,
zinc, iron ore and raw steel. It needs around a quarter of the world supply of industrial metals
for its economic development4.
Comparision of RICI® Indices
500%
400%
300%
200%
100%
0%
Sep 2003
Sep 2004
Sep 2005
Sep 2006
Sep 2007
Sep 2008
RICI® Metals Total Return Index
RICI® Energy Total Return Index
RICI® Agriculture Total Return Index
Source: ABN AMRO Bank N.V., September 2008.
Note: Past results do not guarantee and are no indication of future performance.
Commodity Certificates
The fact that tapping new deposits was neglected between 1990 and 2000, when prices
of commodities were much lower, is something else that is pushing prices up. According to
Jim Rogers, commodities markets are strongly cyclical. In 1998 Rogers noted that “for more
than 30 years no major new oil field has been discovered.” There was little readiness to invest
in new mines and oil fields. This has resulted in a shortage of supply. Should demand rise
commodity prices will skyrocket. Booms in commodities historically extend over periods of
15 to 20 years. As the current boom only began eight years ago, Jim Rogers is still positive
about the commodities sector5.
5
A commodities boom typically lasts approx.
15 to 20 years.
Prices for agricultural goods have increased since 20006. Subsidies have distorted the
market for agricultural products. Government subsidies led to over-production, pulling the
rug from under the world market prices of many agricultural products. Should this lead to a
liberalisation of the agricultural market and hence to a removal of subsidies, it would probably
lead to higher prices. Experts judge the structural prospects for agricultural commodities
as positive over the long-term. The rise in living standards has changed the eating habits
of countries like China and India. The demand for meat, a product which typically refects
affluence, should continue rising. An enormous amount of grain and soya is consumed for
fattening. Several kilos of animal feed are needed to produce one kilo of meat. Furthermore,
the worldwide supply of arable land is declining because of water shortages and increasing
urbanisation7.
Asia also plays an important role in precious metals. India is the biggest buyer of gold in the
world. Indians buy around 800 tonnes of gold a year, approximately a quarter of annual world
production. Every year Indians buy 3,500 tonnes of silver, which is mostly used to create
jewellery8. Silver is also used in the electrical and electronics industries as well as in the
photo industry. According to the “The Silver Institute”, an organisation of silver producers and
manufacturers, silver production was around 20,857 tonnes in 20079.
Platinum is mainly used to manufacture catalytic convertors for vehicles. Around 40% of the
annual supply is used in this sector. Around 20% of the supply of platinum is used in the
jewellery industry. Around 70% is produced in South Africa. Around 90%t of known platinum
reserves are in South Africa. Half of the supply of palladium, the fourth most abundant
precious metal, is also used in producing catalysors in the auto industry. In Asia the precious
metal is also used in the jewellery industry in the form of a gold-palladium alloy10.
Total domestic consumption of grains and soybeans
1,000 MTs
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
India
China
Source: US Depertment of Agriculture Foreign Agricultural Service, September 2008.
Note: Past results do not guarantee and are no indication of future performance.
5. A Bull in China: Invest Profitably in the Opening of the
Worlds Greatest Market, Jim Rogers, December 2007.
6. Bloomberg, 29 September 2008.
7. www.deltafarmpress.com, Strong meat demand
supports higher prices, January 2008.
8. www.gfms.com, Supply and Demand statistic, 2008.
9. www.silverinstitute.org, The Silver Institute, Demand
and Supply 2007.
10. www.implats.co.za, Supply & demand, Platinum,
Palladium, 2007.
6
Commodity Certificates
Commodity indices compared
Certificates can be issued on nearly all
commodity underlyings, whether index,
individual commodity or themes like
precious metals and agriculture.
Investors can use certificates to participate not only in the shares of the companies involved
in producing commodities, but also directly in the prices of commodities. Certificates can
track the performances of nearly all commodity indices or individual commodities. By 2003,
ABN AMRO was already issuing precious metal certificates. In 2004 ABN AMRO followed
with commodity indices and individual commodity certificates. So ABN AMRO made these
underlyings availabe to private investors for trading on the stock market for the first time.
Commodity index certificates allow investors to participate in the development of a broad
spectrum of commodities in low denominations. The variety of commodities in an index
provides considerable risk diversification. ABN AMRO offers products on the S&P® Goldman
Sachs Commodity Index (S&P® GSCITM Index) and the Rogers International Commodity
Index® (RICI® Index).
S&P® GSCITM Index
The underlyings of both open end certificates are composed in different ways. The S&P®
GSCI™ Index contains 24 liquid and tradeable futures from the energy, industrial metals,
precious metals, agricultural and livestock sectors. Each commodity is weighted according
to total world production. The average of world production over the last five years is used to
smooth out the weighting. Consequence: Energy is currently weighted at 75%. Brent Crude
Oil and WTI Crude Oil have a share of around 54% in the S&P® GSCI™ Index (see table).
Hence the index is dominated by oil.
S&P® GSCI™ Components
Sector/Commodity
Weighting
Sector/Commodity
Weighting
Energy
75.05%
Livestock
3.74%
Crude Oil
39.75%
Live Cattle
2.24%
Brent Crude Oil
14.26%
Feeder Cattle
0.39%
RBOB Gas
4.34%
Lean Hogs
1.10%
Heating Oil
5.37%
Agriculture
12.50%
Gas Oil
5.52%
Wheat
3.27%
Natural Gas
5.80%
Red Wheat
0.79%
Industrial Metals
6.47%
Corn
3.58%
Aluminium
2.35%
Soybeans
2.05%
Copper
2.77%
Cotton
0.72%
Lead
0.34%
Sugar
1.24%
Nickel
0.54%
Coffee
0.60%
Zinc
0.45%
Cocoa
0.25%
Precious Metals
2.25%
Gold
2.03%
Silver
0.22%
Source: www.goldmansachs.com; S&P® GSCITM Commodity Index, 29 September 2008.
Commodity Certificates
The Rogers International Commodity Index®
The Rogers International Commodity Index® (RICI® Index) is in contrast set up on a larger
scale. It contains 36 different commodities. The RICI® Index therefore represents a broader
palette of the commodities needed in the global economy. When weighting the commodities
Jim Rogers was guided by commodities prices in daily life. With a 44 percent share, energy
dominates the index. Agricultural goods are in contrast weighted more strongly than in the
S&P® GSCI™ Index. Their share in the Rogers International Commodity Index® is 34.9%.
Another feature: The commodities weightings in the Rogers International Commodity Index®
are fixed. Every month commodities are weighted according to an established initial level.
Advantages: Commodities that rise particularly high are returned to their initial level and hence
drop in weight, whereas commodities that remain behind gain weight in the RICI® Index.
RICI® Index Components
Sector/Commodity
Weighting
Sector/Commodity
Weighting
Energy
44.00%
Agriculture
31.90%
Crude Oil
21.00%
Azuki Beans
0.25%
Heating Oil
1.80%
Barley
0.27%
Brent Crude Oil
14.00%
Canola
0.67%
Gas Oil
1.20%
Cocoa
1.00%
Natural Gas
3.00%
Coffee
2.00%
RBOB Gas
3.00%
Corn
4.75%
Industrial Metals
14.00%
Cotton
4.05%
Aluminium
4.00%
Greasy Wool
0.25%
Copper
4.00%
Lumber
1.00%
Lead
2.00%
Oats
0.50%
Nickel
1.00%
Orange Juice
0.66%
Tin
1.00%
Rice
0.50%
Zinc
2.00%
Rubber
1.00%
Precious Metals
7.10%
Soybean Meal
0.75%
Gold
3.00%
Soybean Oil
2.00%
Palladium
0.30%
Soybeans
3.25%
Platinum
1.80%
Sugar
2.00%
Silver
2.00%
Wheat
7.00%
Livestock
3.00%
Live Cattle
2.00%
Lean Hogs
1.00%
Source: www.rogersrawmaterials.com, 29 September 2008.
7
8
Commodity Certificates
The RICI® Enhanced IndexSM
Future Price
Backwardation
The storage of commodities is usually expensive and hardly any investors have suitable
storage facilities. Commodities investments are thus not usually made through the direct
purchase of the commodity itself but nearly always through the purchase of futures. So the
performance of a commodity investment or index depends not only on the commodity’s spot
price but also on the futures price.
November 2008
New challenges in the commodities index
December 2008
Future Expiry
Source: ABN AMRO Bank N.V. , September 2008.
Future Price
Contango
Passive index products dominate the commodities investment arena and hence control most
of the liquidity. Among the most significant indices in this respect are the S&P GSCITM Index,
the Dow Jones-AIG IndexSM and the CRB Index. The systematic nature by which these indices
invest by cyclically “rolling” the various commodities futures is very similar. All these strategies
bundle the invested capital in front month futures contracts. Demand for short maturities in
commodities futures therefore rises continually as the “assets under management” of these
investment products rise. This affects the structure of the futures curve, which is derived from
the prices of the futures with different maturities for a commodity. Depending on whether
a future commodities price trend is rising or falling, the situation in the futures market is
described as contango or backwardation.
From the viewpoint of an investor backwardation is more desirable as in this case he receives
the price difference of successive futures contacts if the futures tends towards the spot price.
The revenue obtained from the price difference between the two successive futures contracts
is described as the roll yield. In the case of a contango, where nearer contracts are cheaper
than later dated ones, the investor experiences a negative roll yield.
December 2008
November 2008
Future Expiry
Source: ABN AMRO Bank N.V. , September 2008.
To successfuly act on the commodities market therefore negative influences from a contango
situation must be minimised, and the positive yield influence of a backwardation situation
maximised. The timing of the “roll” from one futures contract to another is a crucial factor in
achieving this.
Improving a successful concept – intelligent “rolling”
Although the Rogers International Commodity Index® is clearly superior to previous indices,
it is the changed conditions in the commodities markets, mainly caused by the dominance
of passive index products, which made optimisation of the index concept necessary.
The strategy of the new RICI® Enhanced IndexSM series is to better reflect the long-term
fundamental data of the individual commodities. To achieve this, it deviates from the current
practice of the benchmark commodities indices, which until now have used only the current
futures contract as the price source for the commodities price trend. The RICI® Enhanced
IndexSM invests in a variety of futures maturities to smooth out the price differences of the
various contract maturities. In addition, a special roll calendar is defined for each commodity
in the index, so as better to take into account specific conditions with regard to the seasonality
of the relevant commodity.
The RICI® Enhanced IndexSM was devised by ABN AMRO and Jim Rogers together. The
index concept and the weightings are checked every year and adjusted if necessary. The
weightings of the individual sectors and commodities were adopted on a nearly 1:1 basis
from the Rogers International Commodity Index®. With 37 commodities to date the RICI®
Enhanced IndexSM remains the broadest available commodities index. In comparison with
the Rogers International Commodities Index® the weighting of the agricultural sector were
increased to the detriment of the energy sector.
Commodity Certificates
RICI® Index and RICI® Enhanced IndexSM composition in comparison
RICI® Index
RICI® Enhanced IndexSM
Energy
Agriculture
Industrial Metals
Precious Metals
44%
35%
14%
7%
Energy
Agriculture
Industrial Metals
Precious Metals
Source: www.rogersrawmaterials.com, 29
September 2008.
41%
38%
13%
8%
Source: www.rogersrawmaterials.com,
29 September 2008.
Note: Past results do not guarantee and are no indication of future performance.
Indices in comparison tests
The three total return sector indices
300%
• Rogers International Commodity
250%
•
200%
•
150%
100%
50%
Sep 2003
Sep 2004
Sep 2005
Sep 2006
Sep 2007
Sep 2008
RICI® Total Return Index
S&P® GSCITM Index
DJ-AIG Commodity IndexSM
Source: ABN AMRO Bank N.V., September 2008.
Balancing the set-up and fixing the commodities weightings pays off. The index launched by Jim Rogers on 31 July
1998 significantly outperformed not only the DJ-AIG Commodity IndexSM but also the S&P® GSCI™ Index.
Note: Past results do not guarantee and are no indication of future performance.
To give investors the opportunity to buy into a commodities sector in 2004 Jim Rogers divided
his main index into three indices.
ABN AMRO offers certificates on these three indices. ABN AMRO has also issued four Quanto
certificates without a maturity restriction for commodities indices. As the certificates offer a
hedge against currency fluctuations, they track the performance of the index in Euros. A currency
conversion at the then valid exchange rate does not apply because of the currency hedge.
Commodities are usually lised in US Dollars. History shows that commodities prices have a
negative correlation to dollar price trends. When the US dollar falls, it generally has a positive
effect on commodities prices. This reduces the performance of investors in the Eurozone
who invest in commodities indices or individual commodities without a currency hedge. The
variable hedging fee incurred as a result of implementing such a hedge is deducted from the
price of the certificate on a daily basis.
IndexSM - Agriculture
Rogers International Commodity
IndexSM - Energy
Rogers International Commodity
IndexSM - Metals
9
10
Commodity Certificates
Certificates for individual commodities
Investors can participate disproportionately
in the performance of commodities using
MINI Futures (e.g. RICI® Index).
Investors can buy shares or bonds and deposit them at little cost. Investors receive dividends
from shares and interest from bonds. Commodities do not provide direct income like shares
or bonds. On the contrary: owning commodities like natural gas takes up a lot of space and
costs money (storage costs). Investors should therefore seek price rise opportunities and avoid
storage costs. Certificates make this possible. ABN AMRO offers investors a variety of open end
certificates, as well as Quanto open end certificates with a hedge against currency fluctuations.
Most commodities are listed in US dollars. In 2002 and 2003 investors in the Eurozone lost part
of their profits from commodities because of the weakness of the US Dollar against the Euro.
Hence in 2003 ABN AMRO issued the first Quanto open end commodities certificates.
MINI Futures on commodities - characteristics
A certificate entitlement is crucial for determining the amount of a commodity on which a MINI
Future is based. For example the MINI Future on gold has a certificate entitlement of 10:1.
Investors can therefore invest in 0.1 ounces of gold. The gold price per ounce is currently USD
862.8411. Consequently a MINI Future on gold has a value of USD 86.28.
Common abbreviations for
commodity quantity units
Ounce
Abbreviation
Metric Unit
Barrel
Abbreviation
Metric Unit
Pound
Abbreviation
Metric Unit
Gallon
Abbreviation
Metric Unit
British thermal unit
Abbreviation
Metric Unit
Metric tonnes
Abbreviation
Metric Unit
Bushel
Abbreviation
Metric Unit
Hundredweight
Abbreviation
Metric Unit
oz.
31,1034807g
bbl.
158,98729 litres
lb.
0.453592 kg
gal.
3.785411784 litres
MMBtu.
1,058 joules
mt.
1,000 kg
bu.
35,23907 litres
cwt.
45.359237 kg
11. Bloomberg, 30 September 2008.
12. Bloomberg, 29 September 2008.
Ratios
Price12
Unit
Spot
Spot
Spot
Spot
Future
Future
Ratio of the
certificates
10:1
100:1
10:1
1:1
1:1
1:1
862.84
1010.00
197.50
11.90
93.98
96.37
USD / oz.
USD / oz.
USD / oz.
USD / oz.
USD / bbl.
USD / bbl.
Future
1:1
7.22
USD / MMBtu.
Future
1:10
239.70
cts / gal.
Future
Future
Future
Future
Future
Future
Future
Future
Future
Future
Future
Future
Future
Future
Future
Future
3-month
Forward
3-month
Forward
1:10
10:1
1:10
1:1
10:1
1:10
1:10
1:10
1:10
1:10
1:10
1:100
100:1
1:10
1:10
1:10
100:1
286.47
2065.00
19875.00
18.90
16.25
55.06
130.25
513.00
86.90
1094.00
668.00
12.59
1468.00
98.05
68.55
102.80
2400.00
cts / gal.
MYR / mt.
JPY / kilo
cts / cwt
cts / lb.
cts / lb.
cts / lb.
cts / bu.
cts / lb.
cts / bu.
cts / bu.
cts / lb.
GBP / mt.
cts / lb.
cts / lb.
cts / lb.
USD / mt.
100:1
6477.00
USD / mt.
Commodity
Base value
Gold
Platin
Palladium
Silver
Brent Crude Oil
NYMEX Light
Sweet Crude Oil
NYMEX Natural
Gas Henry Hub
NYMEX Unleaded
Gasoline
NYMEX Heating Oil
Palm Oil
Rubber
Rice
Milk
Cotton
Coffee
Corn
Orange juice
Sojabeans
Wheat
Sugar
Cacao
Live Cattle
Lean Hog
Feeder Cattle
Aluminium
Copper
The gold bought per MINI Futures depends on the price of the underlying, the price of the
futures contract and the certificate entitlement of the certificate. A credit is built into the MINI
Futures. This reduces the capital outlay for investors. MINI Futures thus allow investors to invest
in a lot of gold without using a lot of capital. This produces leverage, which indicates how much
the price of a MINI futures changes if the value of the underlying changes by one percent.
Commodity Certificates
Complying with the rollover
Commodities certificates relate to the relevant futures contract of the commodity, except
of precious metals which relate to their Spot price. They are thus affected by commodity
price changes. As underlyings these futures contracts represent an obligation to deliver. To
avoid having to make a physical delivery you can sell the position before the maturity of the
relevant contract and invest (roll) the capital in the next liquid forward contract. After a roll the
certificate therefore relates to a futures contract with a later maturity and later delivery time for
the commodity. To balance the price difference between contracts, open end commodities
certificates can change the participation rate in the relevant forward contracts.
In our hypothetical example the investor receives USD 236.15 from selling November futures.
The next contract costs USD 235.10. With the rollover for USD 236.15 investors receive a
share of 100.45% in the next contract due (precondition: The participation rate before the roll
is 100 (percent). The value of the certificate is therefore USD 236.15 immediately before and
after the rollover.
Hypothetic example: Roll-over
NYMEX Gasoil Future
November 2008
USD 236.15
December 2008
USD 235.10
Difference
USD -1.05
Participation rate before the roll-over
100%
EUR/USD exchange rate
1.4088
• The price of the December 2008 contract/future is cheaper than the November 2008
future, therefore the participation rate rise.
• New participation rate = old participation rate x price old future / price new future
100.45 = 100.00 x 236.15 / 235.10.
• The future on the ICE Futures Europe Brent Crude Oil is for to one barrel of oil. The openend certificate is for 100.26 percent barrel oil after the roll-over. The price of the certificate
is close to the roll-over date is USD 236.15.
• If the December future rises by 10% to after the roll-over to USD 258.61, the price of the
open end certificate will also rise by USD 259.77 (referring to the participation rate of 100.45%).
The rollover example given is for a market in backwardation. The price of the June futures
below is less than the spot price and also less than the price of the next May futures due
where the delivery of the commodity is fixed. If the forward price of a commodity is above the
spot price experts describe this as contango.
This means long-term additional profits from commodities investments are gained from rolls
from one futures contract to the next. Futures are often priced below the current commodity
price. Commodities can therefore be purchased at a discount with the futures contract. Until
the roll date into the next contract, the price of the current futures approaches the spot price.
The goal of this rollover is to preserve
the value of the open end certificate
immediately before and after the rolls.
Important technical concepts
Backwardation
The forward price is less than the spot
price. (Price for physical acquisition of
the commodity)
Contango
The forward price of a commodity is
more than its spot price
11
Commodity Certificates
Backwardation
Backwardation: Roll-over
60
50
Price
Futures are listed below the relevant
physical commodity price. Futures
contracts can therefore be used to buy
commodities at a discount. By the next
roll date the futures has approached the
current commodity price.
40
30
1
2
Commodity price
Backwardation: Performance
3
Future cycle
Futures
4
5
Source: ABN AMRO Bank N.V., August 2008.
80
70
Price
Hence by the next roll date the discount
received on the purchase has reduced.
Consequence: Backwardation allows
investors to earn more profit from
using futures than by purchasing the
commodity directly.
60
50
40
30
1
2
3
Future cycle
Futures
Commodity price
4
5
Source: ABN AMRO Bank N.V., August 2008.
Contango
Contango: Roll over
60
55
Price
Futures are listed above the relevant
physical commodity price. Futures can
therefore only purchase commodities
at high prices. By the next roll date the
futures has approached the current
commodity price.
50
55
40
1
2
Commodity price
Performance: Roll over
By the next roll date the futures’ markup
on the commodity price has reduced.
Consequence: Contango allows
investors to earn less profit from using
futures than by physically purchasing
the commodity.
3
Future cycle
Futures
4
5
Source: ABN AMRO Bank N.V., August 2008.
60
55
Price
12
50
55
40
1
Commodity price
2
3
Future cycle
Futures
4
5
Source: ABN AMRO Bank N.V., August 2008.
Commodity Certificates
An overview of commodities
ABN AMRO offers investors a variety of open end certificates and Quanto open end inidividual
commodity certificates. MINI futures on commodity indices and individual commodities allow
investors to participate disproportionately in the performances of individual commodities.
Commodities futures are distinguished by contract cycle, listing and exchange.
The charts below represent the price trend of commodities futures contracts in both Euros
and the relevant domestic currency. Most commodities are traded in US Dollars. Commodities
tend to benefit from a weak dollar. Hence for investors who calculate their profits from
commodities investments in Euros, these profits are reduced by currency losses in Dollars.
Using Quantos, with their built in a currency hedge, or implementing a currency hedge via
MINI futures against the EUR/USD exchange rate risk, can be worthwhile.
ICE Futures Europe Brent Crude Oil
USD / bbl.
Underlying
Brent Crude Future
160
Contract size
1,000 barrels
120
Contract cycle
monthly
80
Quotes
USD/bbl.
40
Exchange
Intercontinental Exchange
0
Webpage
www.theice.com
Heating Oil
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
USD / gal.
500
Underlying
Heating Oil Future
Contract size
42,000 U.S. Gallons
Contract cycle
monthly
200
Quotes
USD/gal.
100
Exchange
New York Mercantile
0
Webpage
www.nymex.com
400
300
Natural Gas
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
USD / MMBtu.
Underlying
Natural Gas Future
16
Contract size
10,000 MMBtu.
12
Contract cycle
monthly
8
Quotes
USD/MMBtu.
4
Exchange
New York Mercantile
0
Webpage
www.nymex.com
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
Note: Past results do not guarantee and are no indication of future performance.
•
•
•
•
•
Energy commodities certificates
Precious metals certificates
Industrial metals certificates
Agricultural product certificates
Livestock certificates
13
14
Commodity Certificates
Copper
USD / mt.
Underlying
LME Copper Future
10000
Contract size
25 metric tons
7500
Contract cycle
monthly
5000
Quotes
USD/mt.
2500
Exchange
London Metals Exchange
0
Webpage
www.lme.co.uk
Lead
2003 2004
2005
2006
2007 2008
Source: Bloomberg, September 2008.
USD / mt.
Underlying
LME Lead Future
4000
Contract size
25 metric tons
3000
Contract cycle
monthly
2000
Quotes
USD/mt.
1000
Exchange
London Metals Exchange
0
Webpage
www.lme.co.uk
Nickel
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
USD / mt.
Underlying
LME Nickel Future
60000
Contract size
6 metric tons
40000
Contract cycle
monthly
Quotes
USD/mt.
Exchange
London Metals Exchange
Webpage
www.lme.co.uk
20000
Zinc
0
2003 2004
2005
2006
2007 2008
Source: Bloomberg, September 2008.
USD / mt.
5000
Underlying
LME Zinc Future
Contract size
25 metric tons
Contract cycle
monthly
2000
Quotes
USD/mt.
1000
Exchange
London Metals Exchange
0
Webpage
www.lme.co.uk
4000
3000
Note: Past results do not guarantee and are no indication of future performance.
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
Commodity Certificates
Gold
USD / oz.
Underlying
Gold Spot
1000
Quotes
USD/troy ounce
800
Exchange
London Bullion Market
600
Webpage
www.lbma.org.uk
400
200
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
Platinum
USD / oz.
Underlying
Platinum Spot
2500
Quotes
USD/troy ounce
2000
Exchange
The London Platinum &
Palladium Market
1500
Webpage
www.lppm.org.uk
1000
500
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
Palladium
USD / oz.
600
Underlying
Palladium Spot
Quotes
USD/troy ounce
Exchange
The London Platinum &
Palladium Market
300
Webpage
www.lppm.org.uk
100
500
400
200
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
Silver
USD / oz.
25
Underlying
Silver Spot
Quotes
USD/troy ounce
Exchange
London Bullion Market
10
Webpage
www.lbma.org.uk
5
20
15
0
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
Note: Past results do not guarantee and are no indication of future performance.
15
16
Commodity Certificates
Canola
CAD / mt.
Underlying
Canola Future (WCE)
Contract size
20 metric tons
Contract cycle
November, January,
March, May, July
Quotes
CAD/mt.
Exchange
WCE
Webpage
www.theice.com
Cocoa
800
600
400
200
2003
2005
2006
2007
2008
GBP / mt.
Underlying
Cocoa Future
Contract size
10 metric tons
Contract cycle
December, March, May,
July, September
Quotes
GBP/mt.
Exchange
LIFFE
Webpage
www.liffe.com
Coffee
1800
1400
1000
600
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
USD / lb.
Underlying
Coffee ‘C’ Future
200
Contract size
37,500 lbs.
160
Contract cycle
December, March, May,
July, September
120
Quotes
USD/lb.
Exchange
NYB-ICE Futures US Softs
Webpage
www.theice.com
Corn
80
40
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
USD / bu.
Underlying
Corn Future
800
Contract size
5,000 bushels
600
Contract cycle
December, March, May,
July, September
400
Quotes
USD/bu.
Exchange
Chicago Board of Trade
Webpage
www.cbot.com
Note: Past results do not guarantee and are no indication of future performance.
2004
Source: Bloomberg, September 2008.
200
0
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
Commodity Certificates
Cotton
USD / lb.
Underlying
Cotton No. 2 Future
Contract size
50,000 lbs.
Contract cycle
October, December,
March, July
Quotes
USD/lb.
Exchange
NYB-ICE Futures US Softs
Webpage
www.theice.com
Feeder Cattle
100
80
60
40
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
USD / lb.
Underlying
Cattle Feeder Future
120
Contract size
50,000 lbs.
110
Contract cycle
October, November,
January, March, April,
May, August, September
100
Quotes
USD/lb.
Exchange
CME
Webpage
www.cme.com
Live Cattle
90
80
70
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
USD / lb.
Underlying
Live Cattle Future
120
Contract size
40,000 lbs.
110
Contract cycle
October, December,
February, April, June,
August
100
Quotes
USD/lb.
Exchange
CME
Webpage
www.cme.com
Lean Hog
90
80
70
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
USD / lb.
Underlying
Lean Hogs Future
Contract size
40,000 lbs
Contract cycle
October, December,
February, April, May,
June, July, August
80
70
Quotes
USD/lb.
Exchange
CME
Webpage
www.cme.com
60
50
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
Note: Past results do not guarantee and are no indication of future performance.
17
18
Commodity Certificates
Oat
USD / lb.
Underlying
Oat Future
500
Contract size
5,000 bushels
400
Contract cycle
December, March, May,
July, September
300
Quotes
USD/bu.
Exchange
Chicago Board of Trade
Webpage
www.cbot.com
Orange Juice
200
100
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
USD / lb.
Underlying
FCOJ-A Future
210
Contract size
15,000 lbs.
170
Contract cycle
November, January,
March, May, July,
September
130
90
Quotes
USD/lb.
Exchange
NYB-ICE Futures US Softs
Webpage
www.theice.com
Rice
50
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
USD / cwt.
Underlying
Rough Rice (CBOT)
Contract size
2,000 cwt.
Contract cycle
November, January,
March, May, July
Quotes
USD/cwt.
Exchange
Chicago Board of Trade
Webpage
www.cbot.com
Rubber
30
20
10
0
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
JPY / kg.
Underlying
Rubber Future TCOM
Contract size
5,000 kilograms
Contract cycle
October, November,
December, January,
February, March
400
300
Quotes
JPY/kg.
Exchange
TCM-Tokyo Commoditiy
Webpage
www.tocom.or.jp
Note: Past results do not guarantee and are no indication of future performance.
200
100
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
Commodity Certificates
Soybeans
USD / bu.
Underlying
Soybean Future
2000
Contract size
5,000 bushels
1500
Contract cycle
November, January,
March, May, July, August,
September
1000
500
Quotation
USD/bu.
Exchange
Chicago Board of Trade
Webpage
www.cbot.com
Soybeans Oil
0
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
USD / lb.
Underlying
Soybean Oil Future
80
Contract size
60,000 lbs.
60
Contract cycle
October, December,
January, March, May,
July, August, September
40
20
Quotation
USD/lb.
Exchange
Chicago Board of Trade
Webpage
www.cbot.com
Sugar
0
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
USD / lb.
Underlying
Sugar #11 (World)
20
Contract size
112,000 lbs.
15
Contract cycle
October, January, March,
May, July
10
Quotation
USD/lb.
Exchange
New York Board of Trade
Webpage
www.theice.com
Wheat
5
0
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
USD / bu.
Underlying
Wheat Future (CBT)
Contract size
5,000 bushels
Contract cycle
December, March, May,
July, September
Quotation
USD/bu.
Exchange
Chicago Board of Trade
Webpage
www.cbot.com
1400
1000
600
200
2003
2004
2005
2006
2007
2008
Source: Bloomberg, September 2008.
Note: Past results do not guarantee and are no indication of future performance.
19
This document has been prepared by ABN AMRO Bank N.V. and its affiliates (“ABN AMRO”) for information and discussion purposes only and is aimed at informing its readers
of the main characteristics of the securities described herein, although it is not intended to specify all possible risks or characteristics of the same. It shall not be construed as,
and does not form part of an offer, nor invitation to offer, nor a solicitation or recommendation to enter into any transaction, nor is it an official or unofficial confirmation of terms.
This document does not replace the essential advice given by your bank before entering into any derivative activity and does not constitute an offering document or prospectus
and is not intended to provide the sole basis for any evaluation of transactions in securities or financial interests mentioned herein. Potential investors are, therefore, urged to seek
adequate information, before investing in the securities, on the nature of these products and the risks to which they will be exposed. An offer or invitation to offer, solicitation or
recommendation to enter into any transaction will solely be made on the basis of an offering document or where applicable a prospectus which can be obtained free of charge
from ABN AMRO offices at 250 Bishopsgate, London, EC2M 4AA, United Kingdom. The purchase of securities involves certain risks including market risk, credit risk and liquidity
risk. Investors should ensure that they understand the nature of all these risks before making a decision to invest in the securities. Investors should carefully consider whether
the securities are suitable for them in light of their experience, objectives, financial position and other relevant circumstances. If in any doubt, investors should obtain relevant
and specific professional advice before making any investment decision. In structuring, issuing and selling the securities, ABN AMRO is not acting in any form of fiduciary or
advisory capacity. No representation, warranty or assurance of any kind, express or implied, is made as to the accuracy or completeness of the information contained herein. ABN
AMRO accepts no obligation to any recipient to update or correct any such information. No act or omission of ABN AMRO or any of its directors, officers, employees or agents in
relation to the information contained herein shall constitute, or be deemed to constitute, a representation, warranty or undertaking of or by ABN AMRO or any such person. Any
indicative prices or analysis provided herein have been prepared on assumptions and parameters that reflect our good faith judgement or selection and, therefore, no guarantee
is given as to the accuracy, completeness or reasonableness of any such quotations or analyses. Any person who subsequently acquires securities or other financial interests
mentioned herein must only rely on the terms of the definitive offering document or, where applicable, prospectus to be issued in connection herewith, on the basis of which alone
subscriptions for securities or other financial interests may be made. Without prejudice to the legal responsibility on information, ABN AMRO does not accept any kind of liability
for any cost, loss or claim arising from or related to the investment on the certificates described herein. ABN AMRO and/or RBS and/or their affiliates, connected companies,
employees or clients may have an interest in financial instruments of the type described in this document and/or related financial instruments. Such interest may include dealing,
trading, holding, acting as market-makers in such instruments and may include providing banking, credit and other financial services to any company or issuer of securities or
financial instruments referred to herein. ABN AMRO is not acting as a financial adviser or in a fiduciary capacity in respect of any transaction or the securities or other obligations
referred to herein. ABN AMRO makes no representation and gives no advice in respect of any tax, legal or accounting matters in any applicable jurisdiction. This document is not
intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. The information
contained herein is proprietary to ABN AMRO and is provided upon request to selected recipients and may not be given (in whole or in part) or otherwise distributed to any other
third party without the written permission of ABN AMRO. The financial instruments described in this document are made in compliance with, or are subject to an exemption from,
the registration requirements of the US Securities Act of 1933, as amended. Distribution of the document in the United States or to US persons is intended to be solely to major
institutional investors as defined in Rule 15a-6(a)(2) under the US Securities Act of 1934. All US persons that receive this document by their acceptance thereof represent and
agree that they are a major institutional investor and understand the risks involved in executing transactions in securities. Any US recipient of this document wanting additional
information or to effect any transaction in any security or financial instrument mentioned herein must do so by contacting a registered representative of ABN AMRO Incorporated,
600 Steamboat Road, Greenwich, CT 06830, Telephone: +1 203 618 2700.
ABN AMRO is authorised by De Nederlandsche Bank and regulated by the Financial Services Authority for the conduct of UK business.
The contents of this document have not been reviewed by any regulatory authority in the countries in which this document is distributed. If you are in any doubt about any contents
of this document, you should obtain independent professional advice.
RBS is an authorised agent of ABN AMRO in certain jurisdictions and ABN AMRO is a subsidiary undertaking (as defined in section 1162 of the Companies Act 2006 of England
and Wales) of The Royal Bank of Scotland Group plc.
© The Royal Bank of Scotland plc. All rights, save as expressly granted, are reserved. Reproduction in any form of any part of the contents of this brochure without our prior written
consent is prohibited unless for personal use only.
The brochure contains numerous trade marks belonging to The Royal Bank of Scotland Group plc and other companies in the RBS Group. These trade marks include, but are not
limited to, The Royal Bank of Scotland logo, The Royal Bank of Scotland and RBS. If you are in doubt as to whether an item is a trade mark of The Royal Bank of Scotland Group plc
or a member of the RBS Group, please contact us for clarification at the registered office address The Royal Bank of Scotland plc, Registered in Scotland No 90312. Registered
Office: 36 St Andrew Square, Edinburgh EH2 2YB.
To find out more about Commodities,
Log on to www.abnamromarkets.com or call +44 20 7678 7667
The Royal Bank of Scotland plc (RBS) is an authorised agent of ABN AMRO in certain jurisdictions and ABN AMRO is a subsidiary undertaking (as
defined in section 1162 of the Companies Act 2006 of England and Wales) of The Royal Bank of Scotland Group plc.