SAMSUNG S&P GSCI Crude Oil ER Futures ETF

This is a futures-based exchange traded fund which is subject to risks associated with derivatives and is different from conventional exchange traded funds.

The Index consists of only WTI Futures Contracts whose price movements may deviate significantly from the spot price of WTI crude oil. The Sub-Fund does not seek to deliver a return of the spot price of WTI crude oil.

1. Investment risk
The Sub-Fund is an investment fund. It is a derivative product and is not suitable for all investors. There is no guarantee of the repayment of principal. Therefore your investment in the Sub-Fund may suffer substantial or total losses.

2. Oil market risks
High volatility risk: Oil prices are highly volatile and may fluctuate widely and may be affected by numerous events or factors such as oil production and sale, complex interaction of supply and demand of oil, weather, crude oil inventory level and other financial market factors. Under extreme circumstances, the oil price may drop to zero or negative value within a short period of time. Investors may suffer substantial or total loss by investing in the Sub-Fund.
Single commodity/concentration risk: As the exposure of the Sub-Fund is concentrated in the crude oil market, it is more susceptible to the effects of oil price volatility than more diversified funds. Moreover, the Sub-Fund holds WTI Futures Contracts in a limited number of expiry months only (i.e. in 1M Forward Contracts, 2M Forward Contracts, 3M Forward Contracts and (during the rolling period only) 4M Forward Contracts), this may result in a larger concentration risk and price volatility of the Sub-Fund than a fund which has a more diversified holding of the WTI Futures Contracts in terms of expiry months.

3. Futures contracts risks
Rolling of Futures Contracts risk: "Rolling" means selling existing WTI Futures Contract that are about to expire and replacing them with WTI Futures Contract that will expire at a later date. If the prices of the longer-term contracts are higher than those of the expiring contracts (i.e. a contango market), the proceeds from selling the expiring contracts will not be sufficient to buy the same number of longer-term contracts. Given that the Sub-Fund (being a futures-based exchange traded fund) needs to rollover WTI Futures Contracts for the purpose of replicating the Index, a loss may incur compared to the spot price performance of WTI crude oil (i.e. a negative roll yield) and would adversely affect the NAV. Investors should note that save for the transaction cost incurred, “rolling” in itself is not a loss or return-generating event. The roll yield is typically realised over time.
Volatility risk: The price of WTI Futures Contracts can be highly volatile and is influenced by, among others, trade, fiscal, monetary and exchange control programs and political changes.
Leverage risk: Because of the low margin deposits normally required in futures trading, an extremely high degree of leverage is typical of a futures trading account. A relatively small price movement in a WTI Futures Contract may result in a proportionally high impact and substantial losses to the Sub-Fund. A futures transaction may result in losses in excess of the amount invested.
Liquidity risk: The Index is calculated with reference to WTI Futures Contracts exposing the Sub-Fund and the investor to a liquidity risk linked to WTI Futures Contracts which may affect their value.
Mandatory measures imposed by relevant parties risk: Regarding the Sub-Fund’s futures positions, relevant parties (such as clearing brokers and execution brokers) may impose certain mandatory measures under extreme market circumstances. These measures may include limiting the size and number of the Sub-Fund’s futures positions and/or mandatory liquidation of the Sub-Fund’s futures positions without advance notice to the Manager. In response to such mandatory measures, the Manager may have to take corresponding actions in the best interests of the Unitholders and in accordance with the Sub-Fund’s constitutive documents, including but not limited to implementing alternative investment and/or hedging strategies. These corresponding actions may have an adverse impact on the Sub-Fund. While the Manager will endeavour to provide advance notice to investors regarding these actions, such advance notice may not be possible in some circumstances.

4. Risk of material non-correlation with spot/current market price of the WTI crude oil risk
As the Index is based upon the price movement of WTI Futures Contracts but not on physical WTI crude oil, the performance of the Index may substantially differ from the current market or spot price performance of the WTI crude oil. Accordingly, the Sub-Fund may underperform a similar investment that is linked to the spot price of WTI crude oil. For example, during 2009, the Index underperformed the spot price of WTI crude oil by 53% points (the level of the Index only increased by 25%, while the spot price of crude oil increased by 78%).

5. Margin risk
Generally, most leveraged transactions, such as WTI Futures Contracts, involve the posting of collateral or margin. Increases in the amount of collateral or margin or similar payments may result in the need for the Sub-Fund to liquidate its investments at unfavourable prices in order to meet collateral or margin calls. This may result in substantial or total losses to Unitholders.

6. Distributions risk
Where distributions are distributed out of capital or effectively out of capital, this amounts to a return or withdrawal of an investor’s original investment or any capital gains attributable to that original investment and may result in an immediate reduction in the Net Asset Value per Unit.

7. Government intervention and restrictions risk
Governments and regulators may intervene in the financial markets, such as by the imposition of trading restrictions. This may affect the operation and market making activities of the Sub-Fund, and may create negative market sentiment which may in turn affect the performance of the Index and the Sub-Fund.

8. Passive investments risk
The Sub-Fund is not “actively managed” under normal market conditions, and therefore the Manager will not adopt any temporary defensive position when the Index moves in an unfavourable direction. When there is a decline in the Index, the Sub-Fund will also decrease in value. Under exceptional market conditions and/or extreme circumstances, the Manager may adopt a temporary defensive position for protection of the Sub-Fund in the best interests of the Sub-Fund and the Unitholders.

9. Trading risks
The trading price of the Units on the SEHK is driven by market factors such as the demand and supply of the Therefore, the Units may trade at a substantial premium or discount to the NAV.
As investors will pay certain charges to buy or sell Units on the SEHK, investors may pay more or receive less than the NAV per Unit when buying or selling Units on the SEHK respectively.

10. Trading differences risk
As the NYMEX may be open when the Units are not priced, the value of any Futures Contract in the Sub-Fund’s portfolio may change when investors may not be able to buy or sell Units. Differences in trading hours between NYMEX and the SEHK may also increase the level of premium or discount of the Unit price to its Net Asset Value.

11. Reliance on market maker risk
Although the Manager will ensure that at least one market maker will maintain a market for the Units and gives not less than 3 months’ notice prior to termination of the market making arrangement, liquidity in the market for the Units may be adversely affected if there is no or only one market maker for the Units. There is no guarantee that any market making activity will be effective.

12. Tracking error risk
Due to the fees and expenses and investment strategy of the Sub-Fund, as well as market liquidity, the Sub-Fund’s return may deviate from that of the Index. There can be no assurance of exact or identical replication at any time of the performance of the Index.

13. Termination risk
The Sub-Fund may be terminated early under certain circumstances, for example, where the size of the Sub-Fund falls below HKD40 million. Any distribution received by a Unitholder on termination of the Sub-Fund may be less than the capital initially invested by the Unitholder, resulting in a loss to the Unitholder.

14. Risk related to the Rebalancing Period
The underlying index of the Sub-Fund was changed to the Index effective from 7 August 2020. During the rebalancing period (which is anticipated to take place over 5 business days from 7 August 2020), the Sub-Fund’s holdings will be rebalanced from the September 2020 WTI Futures Contracts, October 2020 WTI Futures Contracts and December 2020 WTI Futures Contracts to the constituents and weights of the Index. The tracking error and tracking difference of the Sub-Fund during such period may increase and investors should exercise caution when dealing with the Units during such period.

15. Past performance risk
As a result of a change in the underlying index, past performance of the Sub-Fund prior to 7 August 2020 is achieved under circumstances which will no longer apply from 7 August 2020. Investors should exercise caution when considering the Sub-Fund’s past performance prior to 7 August 2020.

16. New index risk
The Index is a new index having only been launched on 15 June 2020. As such, the Sub-Fund may be riskier than other ETFs tracking more established indices with a longer operating history.