THE bull run in commodities and the booming Middle East economy are looking increasingly attractive to retail investors who wish to diversify their portfolio.

However, not everyone would have the resources and time to track such investments individually. Some overseas markets are also not easily accessible due to foreign market trading restrictions.

In fact, veteran investor Warren Buffett advocates that those unwilling or unable to intelligently evaluate individual stocks should invest in a low-cost index fund.

This is where Zero Certs come in. Launched last year by Netherlands-based ABN AMRO bank, Zero Certs are essentially index trackers, similar to exchange- traded funds (ETFs).

Zero Certs, or Zero Strike Participation Certificates, allow the investor to buy into a basket of index component stocks of a particular country or theme.

By tracking the movement of their underlying on a 1:1 performance basis, Zero Certs replicate the performance and pay the full return price of the underlying.

Investors can adopt a buy and hold strategy, allowing their Zero Cert investments to move in tandem with indices.

There is no need for complex corporate analysis and the investor is not required to have an understanding of financial theory or portfolio policy.

Other than the usual transaction fees payable for all stock market transactions, Zero Certs have no other direct fees such as sales charge or management fees ? costs which could lower the returns to investors.

Like ETFs, Zero Certs are index- linked and can be traded on the Singapore Exchange, through the usual channels, that is, brokers or online trading.

Each Zero Cert has an initial price of about $1, which means the minimum investment requirement is $1,000 for a board lot of 1,000 shares.

Zero Certs do not pay out dividends and they are not capital protected.

Unlike ETFs and unit trusts, which are open-ended, Zero Certs have a tenor or maturity period of three years, although investors can liquidate their holdings at any time before maturity.

Those who hold their certs to maturity will be paid in cash the market value of the certs at that point in time.

If the value of the underlying index increases by 20 per cent at maturity, for instance, the investor would receive 120 per cent of his initial investment when he redeems his Zero Certs.

If the index goes down by, say, 5 per cent, the investor will receive 95 per cent of the initial investment.

Investors who do not wish to cash out on maturity will be offered new certs for them to reinvest or roll into.

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