A price hike for DB Powershares (updated) | FT Alphaville

A price hike for DB Powershares (updated)

Here’s a curiosity.

On December 3, Deutsche Bank Commodity Services announced it would be raising fees on seven PowerShares exchange-traded funds, worth a total $9.2bn, due to the added cost of extra “commodities regulation”.

As Bloomberg reported, annual fees at six of the funds are rising to 0.75 per cent (from 0.5 per cent)  of the funds’ average daily net asset value and, in the case of the DB Agriculture Fund, to 0.85 per cent from 0.75 per cent:

The bank is increasing fees on funds that invest in oil, wheat, silver, currencies and gold because of “changing regulatory requirements,” according to a filing today with the Securities and Exchange Commission. A spokeswoman for Deutsche Bank declined to comment.

The Commodity Futures Trading Commission has been tightening rules on speculation and considering stricter limits on the number of contracts one investor can hold amid concern that speculators contributed to record-high commodity prices last year.

Fees for PowerShares DB Oil Fund, PowerShares DB Gold Fund and PowerShares DB Silver Fund, PowerShares DB US Dollar Index Bullish Fund, and PowerShares DB US Dollar Index Bearish Fund will increase to 0.75 percent from 0.5 percent per year of the funds’ daily net asset value.

PowerShares DB Agriculture Fund, the largest agricultural fund in the U.S., and PowerShares DB Commodity Index Tracking Fund, the largest broad-basket commodity ETF, will raise fees to 0.85 percent from 0.75 percent. The increase will take effect Jan. 4, 2010.

Two points to make here:

a) Despite much talk about position limits, regulators have yet to actually implement across-the-board changes to current commodity exchange regulation.

b) Most other exchange-traded funds are cutting fees as best they can. In fact, Deutsche Bank’s European ETF arm, DB x-trackers, recently  cut management fees on some of its European products to zero per cent.

The issue, therefore, is case specific.

Back in August, DB disclosed it was changing the composition of some of its funds due to its commodity index and agriculture funds having “no action letters” stripped from them by the CFTC. The letters had let them surpass federal caps on holdings in wheat and corn.

The thing is, the “no action letters” only ever applied to DB’s wheat and corn positions — because these were the only two markets in DB’s indices bound by regulatory position limits.

DB’s fee hikes, meanwhile, apply to its composite commodity and agriculture funds (DBA and DBC) but also to funds tracking individual commodities as diverse as silver, oil and dollar index futures. What’s more, in the later case the futures happen to trade on the Intercontinental Exchange — an institution which cooperates with the CFTC, but which still falls under separate accountability limit structures.

And if you’re wondering where 0.75 per cent on fees leave DB versus its immediate competition, the United States Oil Fund currently charges just 0.45 per cent.

Although it’s worth pointing out that DB Powershares’ management fees account for costs that are not included in many other funds’ base management fees, such as tax-prep, audit and printing costs.

For example, in the USO’s case the total expense ratio for the fund in its last reporting period was to 0.96 per cent.

Related links:
Whatever happened to Deutsche’s ETN liquidation?
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D Bank unit hit by CFTC crackdown
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