Julius Baer physical metals funds set to open for retail investors

May 29 The only industrial metals funds backed by physical material will be allowed to accept retail investors starting next week, which the managers hope will boost interest after a slow take up.

Funds backed by physical metal have been a hit in gold and other precious metals, but have failed to take off in base metals such as copper and aluminium.

Some institutions that considered investing in the Julius Baer (JB) Industrial Metals Funds faced difficulties because their customers included retail investors, an executive said.

"We got headwinds from the regulatory side of our key investors," said Stephan Mueller, head of product management and development at Swiss-based GAM, manager of private bank Julius Baer's funds.

Total assets under management of the JB funds in aluminium, copper, nickel and zinc are modest. They collectively totalled $11.8 million this week, down from $16.7 million in March 2014.

When the funds were launched in October 2013 the Swiss regulator approved them for only "qualified investors", which include banks, insurance companies and wealthy individuals.

That was because the funds were breaking ground by backing them with physical metal, but now that the scheme has successfully run over 18 months, the regulator has lifted those restrictions effective from June 1.

The JB funds are the only physically-backed industrial metals funds after ETF Securities closed down theirs in June last year.

Other institutions, such as the world's largest money manager, BlackRock, and Wall Street bank JPMorgan Chase have sought to create physical exchange traded metals funds, but never managed to launch them.

ETF Securities still has ETFs that track the price of industrial metals, but they do not have physical metal backing them. The ETF Securities copper fund has assets of $148.6 million and aluminium, $122.5 million.

The JB funds hope to tap institutions that have existing allocations in commodities, seeking to attract interest with the low-cost structure of the funds.

GAM slashed costs of their funds by storing the metal in under-used warehouses owned by commodity trader Trafigura, often paying less than half the standard rent levels. This allows their funds to outperform competitors, Mueller said.

"Even the pension funds, they have to deal with the question: 'How do we replicate our commodity exposure in a smart way without being exposed to negative roll yields?'"

By investing in commodity indexes, when futures markets are in contango - with forward prices higher than nearby ones - investors lose money rolling their positions forward.

Positions do not have to be rolled forward in funds holding physical metal.

GAM, which used to be owned by Julius Baer, has assets of 123 billion Swiss francs.

(Reporting by Eric Onstad; editing by Susan Thomas)