EarlyOne
15年前
Which ETF Offers the Best Way to Invest in Commodities?
January 20, 2010
By John Gabriel
An interesting mix of industry players sat on the aptly titled panel, "Hot Topic: Commodity ETFs," at the third annual Inside ETFs Conference, hosted by indexuniverse.com. These days it is no understatement to render commodity ETFs as a "hot topic." In fact, it's hard to think of an asset class that the ETF industry has had more of an impact on in the last several years--both through democratization and regulatory issues that have arisen. It wasn't long ago that the commodities futures markets were solely the domain of farmers, energy producers, and mercantile-exchange arbitragers. Today, with the advent of futures-based commodity funds, we've witnessed monthly financial activity in the commodity markets that considerably outstrips physical production. (Also, speaking of regulation, on Jan. 14, the Commodity Futures Trading Commission ruled 4 to 1 in favor of enforcing position limits on several energy futures contracts; see the closing remarks press release).
First up on the panel was Satch Chada, managing director at Jefferies Asset Management, who advocates that investors allocate the "commodity slice" of their portfolios to the stocks of commodity-producing companies, rather than commodity futures. This is along the same school of thought that brought us Market Vectors RVE Hard Assets Producers ETF (HAP) from Van Eck. Teaming up with Thompson Reuters, Chada's firm introduced CRB Global Commodity Equity (CRBQ), CRB Global Industrial Metals Equity (CRBI), and CRB Global Agricultural Equity (CRBA) in September 2009.
The argument, of course, centers on the recent deviation in performance between spot prices and the returns that investors experienced in long-only commodity futures index products. I strongly urge interested investors to check out the recent article by my colleague Paul Justice, "Commodities Are a Rock in a Hard Place," for his thoughts on what might be contributing to the seemingly persistent state of contango that has been so prevalent over the past few years in most major commodity markets. This dilemma can be more easily communicated graphically, in my opinion. Notice in the chart below how the Dow Jones-UBS Commodity Spot Index begins to significantly outperform its futures-based cousin, Dow Jones-UBS Commodity Index, as asset growth in futures-based ETFs begins to ramp up around 2005. (Note that the "futures-based" version of the index is the benchmark of the popular iPath Dow Jones-UBS Commodity Index (DJP).
A few trends are worth highlighting from the graph. First, although the spot price index returned 214.5% over the past 10 years (2000 through 2009), the futures index--which serves as the benchmark for "investable" products--only posted a gain of 50.8% over the same period. You probably also noticed that backwardation helped the futures index outpace spot price returns until around 2005--right around the time when passive long-biased commodity ETFs started gathering assets.
To help illustrate the potential impact that wide-scale adoption of commodity ETFs had on commodity futures markets, consider that from Dec. 31, 1999, through 2005 year-end, the spot index gained 117.7% versus 85.5% for the futures index. However, from Dec. 31, 2005, through the end of 2009 (after commodity ETFs gained in popularity), the spot index rose more than 44%, compared with a decline of nearly 20% in the futures index. Sure, the return patterns remained correlated, but I highly doubt that any investor would find such results appealing (or acceptable) by any stretch of the imagination.
Getting back to the panel; we'd note that Chada's argument does fly in the face of why investors gravitated to commodities so strongly in recent years. Commodities' appeal stems from their diversification benefits (as a noncorrelated asset) when added to a portfolio of equities and fixed income. However, by investing in the stocks of commodity-producing firms, investors are thereby simply piling on additional "equity beta" to their portfolios.
While we acknowledge that many have questioned commodities' role as a "diversifier" following the crisis of 2008, we'd also remind investors that the correlation of returns to historically uncorrelated assets goes to one amid a deleveraging crisis. Of more interest to us is the possibility that the rising popularity of commodity investing among the masses could actually help diminish the asset class' diversification benefits. In any case, to Chada's and his firm's credit, the timing of the pitch really couldn't be better--at least in terms of resonating with those who feel burned after witnessing how contango can erode their investments in commodity futures.
As expected, John Hyland, CIO of United States Commodity Funds, who is never shy to share what's on his mind, defended commodity futures' investment merit and their role as part of a broadly diversified portfolio. When evaluating the research presented to rationalize each panelist's stance on the topic, let's not lose focus on their primary business objectives. Of course, Hyland's firm offers the now-infamous (futures-based) United States Oil (USO) and United States Natural Gas (UNG). These funds have spent a lot of time in the headlines recently on account of their rapid growth coinciding with steep contango in the energy markets. Click here to see a video clip of Hyland discussing the CFTC's recent ruling on position limits and how it affects his firm's operations.
We estimate that about $1.5 billion in shareholder wealth was wiped out in UNG during 2009 thanks to the effects of contango. Interestingly, investors continued to "bottom fish" natural gas via the fund, helping UNG clock in as the fourth most popular ETF of the year in terms of net inflows. Even as spot prices on natural gas ended up even for the year, this fund lost 57% due to the effects of rolling the futures contracts each month.
Barring a wide-scale shift in how investors gain access to commodities, contango seems to be a problem that could persist well into the future. Let's face it, financial players won't be taking physical delivery of most commodities and assuming the (massively prohibitive) associated storage costs. Moreover, as shown in the graph above, long-only futures-based commodity index investments have started to reach a critical mass, and their influence on the behavior of the asset class cannot be ignored by those looking to add commodity exposure to their portfolios. Regulators--for better or for worse--aren't standing pat. Of course, we'll continue to monitor the situation as it unfolds. (As a rule of thumb: If the terms contango and backwardation mean nothing to you, then by all means steer clear of futures-based investment solutions.)
Fresh off the Jan. 8 launch of ETFS Physical Platinum Shares (PPLT) and ETFS Physical Palladium Shares (PALL), we also heard from Graham Tuckwell, chairman of ETF Securities. Tuckwell's firm now enjoys the coveted first mover advantage status with PPLT and PALL, which, as of Jan. 13, already had $126.1 million and $38.1 million in total net assets, respectively--talk about pent-up demand. Considering the recent poor investor experiences in derivatives-based funds, the warm reception for these physically backed funds really came as no surprise to industry followers.
Still, these recent ETFs are precious-metals funds. Keep in mind that because we can account for and (easily) store precious metals, their futures contracts will always equal the spot price plus interest (with interest expenses varying based on how far out the contract matures). Obviously, because of storage constraints, energy markets are a much different animal.
Realizing the appeal of physically backed commodity exposure in the marketplace today, Tuckwell and his firm have--still unsuccessfully--explored the possibility of launching a physically backed energy ETF. As nearly all of the above-ground oil and natural gas is owned by the major integrated oil firms at their refineries, ETFS was interested in attempting to securitize those refinery assets. Tuckwell even revealed that his firm has held discussions with Royal Dutch Shell (RDS.A) about the idea. Details are scant at this point, but it will be interesting to see if these creative folks can discover an acceptable process for securitizing refinery assets down the road.
We can argue all day long about when or whether we'll see commodities markets flip into backwardation (like oil for much of the period between 2000 and 2005). If that were to happen, head winds would turn to tail winds, and futures-tracking products would outperform spot prices. While it seems very unlikely at this juncture, if we've learned anything over the past couple of years in capital markets, it is that unlikely events seem to occur more frequently than anyone expects. For the time being, however, we'd expect purveyors of physically backed commodity funds to have a decided leg up on futures-based products that offer exposure to similar markets. When possible, we'd urge investors to take the physically backed route and avoid singing the contango blues.
EarlyOne
15年前
The Commodity Index Reborn
September 29, 2009
By Lara Crigger
As readers of HardAssetsInvestor.com know, the Commodity Futures Trading Commission spent all summer pushing for tighter regulation of commodity ETFs, which the agency blames (rightly or wrongly) for running up energy prices last year.
For the CFTC, it's not a question of whether they should impose new regulations, but how much: Position limits, tighter regulation of swaps contracts and higher capital and margin requirements for derivatives are all possibilities currently on the table.
Exactly what shape the new rules will take will be decided later this fall, but already the debate has sent convulsions throughout the industry. Several futures-based exchange-traded products, like the U.S. Natural Gas Fund (NYSE Arca: UNG) and the iPath DJ-UBS Natural Gas ETN (NYSE Arca: GAZ), suspended the creation of new shares (although UNG has recently reopened). And at least one product, the PowerShares DB Crude Oil Double Long ETN (NYSE Arca: DXO), was entirely liquidated.
But what about the indexes themselves? After all, an ETF is really only as good as the index it tracks, and if commodities indexes don't evolve, how then can the products?
Last week, several indexing companies announced their ideas for new commodities benchmarks, making it clear they didn't plan to wait around for the CFTC to get its act in gear. But will any of their approaches work?
The CRB Index, Redefined
Last week, Thomson Reuters and Jefferies & Co. launched a revamped version of their famous CRB Index that focused not on commodity futures, but equities.
The original Reuters-Jefferies CRB Index, one of the most widely followed indices around, tracks 19 futures contracts from across the commodities spectrum, including crude oil, natural gas, industrial and precious metals, and softs.
In comparison, the new benchmark, the Thomson Reuters/Jefferies In-The-Ground CRB Global Commodity Equity Index, tracks 150 commodity producers and distributors worldwide. It includes equities of 50 energy companies, 35 agricultural producers, 35 industrial metals firms and 30 precious metals companies. The fund's associated ETF, sponsored by ALPS Funds, launched last week under the ticker CRBQ. (Check out the CRBQ prospectus here.)
CRBQ definitely isn't the first equity-based commodity fund: It has competition from existing broad-based ETFs like Van Eck's Market Vectors RVE Hard Assets Producers ETF (NYSE Arca: HAP), and iShares' S&P North American Natural Resources Sector ETF (NYSE Arca: IGE).
But the new Reuters/Jefferies index does mark the first equity-based benchmark launched specifically as a reaction to the CFTC's moves. It's "an alternative for investors looking for exposure to commodities without exposure to the commodities futures market," said Art Hogan, chief market strategist at Jefferies & Co, to the WSJ last week.
On paper, it's not a bad idea: A pick-and-shovel commodities index does avoid the volatility common to the derivatives market, and it places any ETFs tracking it outside the reach of the CFTC. Plus, in some cases, equities are the only way to score exposure to illiquid or difficult-to-access markets, like coal or steel.
But equities-based commodities ETFs have their own issues to contend with—namely, equity risk. As Larry Swedroe pointed out in last week's interview, equity-based funds tend to correlate higher to equities than to commodities. Stock-based ETFs simply aren't the "pure plays" on commodities that many investors are looking for.
S&P Goes Overseas
So perhaps the answer isn't to take commodities ETFs out of the futures market-but to get them out of the U.S. entirely.
That's the thinking of Standard & Poor's—the people behind the world's largest commodities index, the S&P GSCI. Recognizing that increased oversight of commodities markets at home will likely push trading to less regulated markets overseas, S&P has begun "seriously exploring" a new commodity benchmark that would forgo any U.S. exposure whatsoever.
The S&P GSCI index mostly tracks futures traded on U.S. commodities exchanges—particularly West Texas Intermediate crude oil, in which it has 39% of its holdings. An ex-U.S. version, on the other hand, would track European contracts, like U.K. Brent crude oil futures, the LME metals contracts, or the softs available on the U.K.'s Liffe exchange.
Apparently S&P had considered launching such a benchmark as far back as 2007, but "it's accelerating a little more, as people fear potential regulations in U.S. financial futures markets," said director of commodity indexing Michael McGlone to Bloomberg. S&P hopes to launch the new index by early next year.
Of course, creating an ex-U.S. commodity fund is easier said than done. S&P has been on the hunt for two years for overseas futures contracts offering sufficient liquidity—to no avail.
"We keep hitting bottlenecks with liquidity issues," McGlone told Reuters. "We'd consider any futures, as long as they pass liquidity constraints, as long as they can be actively traded by foreign investors."
That they haven't found anything in two years of looking is quite telling.
In addition, there's the issue of currency risk, meaning that investment returns are subject to the whims of exchange rate fluctuations. So far, exchange rates have worked in U.S. investors' favor, as the falling dollar has helped to boost international returns. But should the dollar rally or should foreign currencies depreciate, those same overseas investments could be hit hard.
Platts Gets Physical
What if the solution to the commodities ETF dilemma isn't to find the right equities or futures—but to avoid them altogether?
That's the solution floated by energy information giant Platts, who told Reuters it was contemplating the creation of a new, all-physical commodities index that would offer pure exposure to oil, metals, gas and coal.
"The appetite to be exposed to energy prices is fairly large," said Jorge Montepeque, Platts' global director of market reporting. In particular, he cited increasing demand from financial institutions and hedge funds, who've started looking to the physical spaces as a way to escape the volatility inherent in the futures market.
"There is easy access to futures instruments," he said. "Hence the market wants to have the same easy access to the physical instruments."
But on the other hand, "the reason for the volatility of the futures markets is that the physical markets are volatile-not the other way around," said Chris Cook, former compliance and market supervision director of the International Petroleum Exchange, in an interview with HAI on Monday.
"The reason why the likes of the hedge funds are looking to join the investment banks in the physical market is that in this way, they can be 'on the inside pissing out,' as Lyndon Johnson put it," he added. "It will make the physical market that much more volatile."
As for the likelihood of Platts' proposed index ever making it to launch, says Cook, "I think the regulators might take a bit of convincing."
Will It Work?
Only time will tell if any of these new indexes can successfully circumvent the CFTC's impending rule changes—or even make it to launch. But just the fact that indexing companies are thinking about this may bode good tidings for commodities ETF investors.
As adviser Larry Swedroe told HAI in an email last week, "When you impose regulations like those suggested, and there is demand for the product, smart people will find a way to deliver it."
EarlyOne
15年前
Commodity ETFs for a Regulation-Happy World
September 29, 2009
When they were introduced several years ago, exchange-traded commodity products were hailed as a major breakthrough, offering average investors easy, cost efficient exposure to an asset class that had previously been accessible primarily through futures markets and physical storage of natural resources, both of which are beyond the reach of many investors (see our complete guide to ETFs for Very High Net Worth Individuals here).
How times have changed.
Exchange-traded commodity products are now the subject of intense scrutiny from a number of parties, with regulators cracking down on funds that have grown so significantly that they now represent a significant portion of all outstanding futures contracts on certain commodities. The United States Natural Gas Fund (UNG) was forced to halt new share creations earlier this year, and Deutsche Bank recently announced the shuttering of the PowerShares DB Crude Oil Double Long ETN (DXO), the first, but probably not the last, fund to close as a result of an evolving regulatory environment.
It’s likely that ETF sponsors will in turn adapt to position limits and other restrictions enacted by the CFTC and other regulatory agencies later this year. Several have already come up with a simple but effective solution: a commodities fund that doesn’t own either commodities or commodities futures.
The latest ETF to use this strategy is the Thomson-Reuters Jefferies Commodity Equity Index Fund (CRBQ), which invests in companies that produce commodities, such as miners of precious metals and oil drilling firms. Because the holdings of the ETF are equities, CRBQ doesn’t risk running afoul of existing or upcoming position limits on futures contracts, a major concern for many funds at present.
The weightings of individual companies in the ETF are determined not by market capitalization, but by the market value of the resources produced. Energy companies, including ExxonMobil (XOM), BP plc (BP), OAO Gazprom (OGZYPY.PK), Total SA (TOT), Petroleo Brasileiro (PBR), and Royal Dutch Shell (RDS.A), account for nearly 40% of CRBQ’s holdings. U.S. and Canadian equities account for about half of this ETF’s holdings, with the remaining half spread across a handful of resource-heavy economies, including Australia, Brazil, and South Africa.
CRBQ isn’t the first ETF sponsor to use this approach. Van Eck has a line of “hard asset ETFs” that invest in equities of firms involved in various commodity businesses, including:
Gold Miners (GDX)
Hard Assets Producers (HAP)
Agribusiness (MOO)
Coal (KOL)
Steel (SLX)
PowerShares has also jumped into this space, offering the Global Coal Portfolio (PKOL).
While these strategies avoid troublesome futures contracts and expenses associated with physically storing commodities, investors hoping for strong correlations with spot prices may be disappointed (or very pleasantly surprised, depending on the direction of the commodities markets). The SPDR Gold Trust (GLD) has gained about 12% this year as investors have flocked to safe havens.
Over the same period, the Market Vectors Gold Miners ETF (GDX), which invests in companies that derive their revenues from mining activities, has gained about 27%, or more than twice the increase in the spot price of gold. Because many commodity producers have significant fixed costs, increases in the prices of underlying resources may fall straight to the bottom line.
Even more severe is the relationship between coal prices and the performance of two coal ETFs so far in 2009. KOL and PKOL, which both invest in companies that derive their revenue from the coal industry, have delivered returns of 105.5% and 97.2%, respectively, so far in 2009, while coal prices have actually declined. According to the Energy Information Administration, the price of Central Appalachia 12,500 BTU coal has dropped by about 31% since the beginning of 2009.
While the prices of commodities in which these companies deal certainly has a major impact on firm and industry profitability, it isn’t the only factor that drives prices. After all, these “indirect commodity ETFs” are still comprised of equities, not commodities. Because they maintain exposure to commodity prices but also domestic and international equity markets, these funds have a number of potential uses in portfolios, ranging from hedges against inflation to speculation in commodity prices.
EarlyOne
15年前
Dr. Stephen Leeb on Commodities and Inflation - Is He a Genius or Alarmist?
June 17, 2009 Larry Bellehumeur
I just finished reading a book called "Game Over" by Dr. Stephen Leeb, and I am not sure what to make of it. The basis of the book, at least how I have read it, is that there is going to be a pressing demand for resources (Oil, Natural Gas and all sorts of Mining products) that will push the price of these products to points that will force inflation-like conditions as there were in the 1970's (if not much worse).
His theory goes further on to say that unlike the 1970s (where most of the demand for oil was caused by Political conditions), this spike in prices is one that is more of a permanent nature, as the spike is more due to a lack of supply caused by a scarcity of the materials and/or the ability to extract the materials at a rate to meet the demand.
Because of this expected spike in Commodity prices, and the lack of choices available to the US Fed to control inflation (as it cannot risk further damage to the Housing market with the rise of Interest rates, nor can the US "Debt-ridden" consumer tolerate a spike in rates on their personal debt), Leeb contends that the Fed would rather tolerate High inflation (or maybe even Hyper-Inflation) rather than risk the chance of deflation.
Now, I will say that Dr. Leeb is much more of an alarmist than I ever would be, as he further goes onto to talk about how this may lead to the decline of civilization as we know it. However, he does bring up some interesting points. If his thesis were to come to pass (or even a slight variation of it), it would significantly change the way that most investors would need to think about their portfolio. Below I have listed some of his theories from the book. I have provided my opinion on them, and how Leeb and/or I suggest that you may utilize this theory in your investment strategies.
Leeb Theory #1
The World is running short on many key resources and will face critical shortages within 15 years.
Now, to be fair, Leeb isn't the only person out there suggesting that we are running low on key Resources. It is interesting that he has actually put a timeline for when we can expect to run dangerously low on some key Commodities.
Assuming that the rest of the world were to use the following resources at half of the rate (per Capita) that the US uses them today, the following are Leeb's estimates as to the current years of reserves:
Antimony - 13 Years
Chromium - 40 Years
Iridium - 4 Years
Lead - 8 Years
Nickel - 57 Years
Platinum - 42 Years
Silver - 9 Years
Uranium - 19 Years
Now, it would take a lot of development in the Developing world for them to approach even half of the Per Capita Consumption Rate that the US does today. However, even with a few more years added onto these totals, it is not unreasonable to assume that we may see serious shortages in key resources such as Silver, Uranium and Iridium before 2025.
Ways to play this theory:
Personally, I have started to watch BHP Billiton (BHP) a lot closer. They are a strong producer of several key Base Metals, as well as Iron Ore, Aluminum, and Coal. Their extra exposure to Oil and Diamonds are not a bad bonus, either. If the world economy starts to recover in 2010, BHP should do quite well. I would look for an entry point (for the US ADR) of between $47 to $50, as a good spot for a long-term hold.
Leeb Theory #2
The inevitable spike in Resource prices will cause Inflationary pressures unlike anything most of us have seen in our lifetimes
Leeb claimed that this would happen in his book earlier in this decade, "The Oil Factor". Did we have incredible inflationary pressure over the past few years when Oil exceeded $100/barrel, as he predicted? Well, it depends on who you ask. If you use the Government's normal way of measuring inflation [CPI], the answer would be that we had slightly higher than normal inflation over the past few years.
However, when you factor in Food and Energy (the two factors that are likely to see higher inflationary pressures with the rise in the price of Oil, and are not counted in CPI), one can't doubt that we did see some relatively strong Inflationary pressures. However, it would be a stretch to call them extreme. The same can be said for rising prices in other commodities from Food to Copper.
This doesn't mean that Leeb's Theory is incorrect. If we were to be running short on all of the commodities in the manner that he states in Point #1, then it wouldn't be hard to imagine 20+% annual inflation within the next decade. This is further exasperated by how the Fed has been reacting as of late. The incredible amount of dollars that has been printed on the "Bernanke/Geitner Printing Press" in 2008/09 will likely lead to a higher level on its own. If we were to see such rising commodity prices as Leeb predicts, I fear that his theory may be bang on the money. This problem is further worsened by the amount of debt that is held by Consumers in the US, who could not afford to have an Interest-Rate Induced Recession to control Inflation, as per the Volcker years.
Ways to play this Theory: See Theory #4
Leeb Theory #3
Traditional "Defensive" Investments will offer bad (if not Negative) returns in this upcoming Inflationary environment.
In his book, Leeb re-states the common phrase of "History rarely repeats itself". Since this is likely true, it is impossible to know for sure which investments will be the optimal ones for any upcoming inflationary period, since the causes of the inflation are different than those from the late 70's, as an example. However, the period from 1970 to 1979 does allow us to at least see how traditional Defensive investments held up during the last major bout of inflation.
According to Leeb's research, here is how the following investments fared (in Real Returns) during the period of 1970 (at the High) to 1979 (Low):
Beverages -13%
Cosmetics -45.6%
Staples Retail-34%
As you can see, many of the commonly-held theories on what will perform well during downtimes do not appear to apply during times of high inflation. The reason is that although these companies may offer a service/product that people need for everyday life, and they also may be able to pass on many of the escalating costs onto their customers, they tend to be High P/E stocks to start with. Inflation tends to have the effect of lowering down P/E ratios.
The Question then becomes.....are there any Defensive stocks that will perform well during Inflationary times? The two types of Companies that comes to mind for me are those companies who have fixed prices that are linked inflation and those companies who hold a lot of "Hard Assets" as part of their Portfolio.
For the first part, Utilities and/or Pipelines should hold up fairly well during these times, at least in my opinion. First, these companies have fixed contracts that often allow them to raise their rates based on the Level of inflation (on a negative note, however, the inflation rate that they can raise rates is generally linked to the CPI, which can often not reflect the true inflation rate, but it is at least better than nothing).
The second important point is that while these companies often carry a lot of debt for their infrastructure, the rising inflation actually helps to reduce the "Real Cost" of that debt, allowing them to pay it off faster. On the negative side, many of these offer the Interest rates a little, the yields for these companies will seem a little less appealing to some investors.
As for companies with Hard Assets, two types of companies come to mind. The first is Pipelines/Utilities, where they often own a significant amount of Hard Assets. If the debt for these assets becomes less in Real Terms (due to rising inflation), but the value of the same assets manages to keep up with Inflation, this could be a "Gold Mine". The 2nd group that comes to mind are the REITs, since Real Estate Values has often kept up with Inflation. However, history does not always repeat itself, so it is hard to say if it will this time.
My Personal recommendations to Play this Theory:
- TransCanada (TRP) and Enbridge (ENB) can help with both the Utilities and Pipeline side. As well, Kinder Morgan (KMP) is a good play if you want exposure to primarily Pipelines.
- On the Pure Utility side, I personally like FPL Group (FPL), as they are not only a strong player in the Utility space, but they are also a rising player in the Wind space, which should see some rise over the next few years
- On the Real Estate side, for most people, my recommendation is "Own your home". Since this would likely make up a large percentage of one's total Investments, most people do not need to make any extra investments in this space. If you're not in this position, I would look at REITs that have a low Debt ratio and focus mostly on Industrial / Commercial markets. The reason why I would go after this space is that I suspect that we will see a run on Infrastructure Needs over the next few years, making this a better focus than on Office space.....
Leeb Theory #4
Gold is your best investment, followed by investments in: Oil Services Stocks, Oil Producers, Base Metals Miners, Gold Producers, "Solution Companies", TIPS and Defence Stocks
I can see the rationale behind holding Gold as a primary defense against Inflation. My only fear about owning Gold is for the other reason that most investor chose to own Gold, namely as a "Safe Haven" in a time of crisis. If we are indeed about to hit Peak Oil / Period of Hyper-Inflation, that sounds like a likely time to turn to a Safe Haven like Gold. Problem is......weren't we just in a similar time, with the possible Collapse of the Financial System? If Gold is supposed to be universally considered to be a Safe Haven, then I am curious as to why Gold is not $1500 an ounce now? Nevertheless, the average investor should hold some gold in their portfolio at all times.
As for the Commodity Producers (Oil Producers, Oil Services companies and Miners), Leeb's theory behind this one is to own the producers of the products that are causing all of the Inflation, as the price of their respective commodity is likely to rise as fast (or faster) than the rate of Inflation. This is likely a good theory, and one that I subscribe to.
There are two possible things to be concerned about when owning these companies during an Inflationary period. First, Inflation is unlikely to go straight up forever, as there will be inevitable times of low inflation or even deflation. So, it is unlikely that one would want to hold these stocks infinitely, but rather to trade them at signs that inflation may be cooling. The other thing to watch is to see if their rate of earnings / revenue growth is keeping pace with their costs, as many of their input costs (Materials, Energy, Skilled Labor and more) will also be rising at a fast pace. So, watch to see if the bottom line is increasing as fast as the top line.
As for the last two, TIPS is the easier one to explain. Having an investment that is designed to return slightly over the cost of inflation is a good thing during a period of Inflation. What is not a good thing is that it doesn't necessarily track the rate of the "true" inflation. The other concern is one of taxes, so these are best owned in your Tax-free accounts.
As for Defense stocks, Leeb claims that the US will have to spend an increasing amount to bolster their Military to allow them to replace a lot of older equipment, as well as to increase their strength to defend access to necessary future resources. I think this is a reasonable scenario and would subscribe to this theory
My Personal recommendations to play this Theory:
Gold (GLD)
Oil Producers (CNQ, SU, COP, DVN)
Oil Services (RIG, BHI, SLB, WFT)
Base Metal Miners (BHP, TCK.B)
Solution Companies (FLR, Veolia)
Gold Producers (G, ABX)
TIPS - TIP
Defence - Northrup Grumman (NOC)
Leeb Theory #5
One of the only companies that do not fall under the above list who will thrive will be Berkshire Hathaway
Leeb's theory has more to do with Berkshire's Re-Insurance business than with the stock picking prowess of Buffett. This is obvious, as while he praises Berkshire's Insurance businesses, Leeb also criticizes owning many of the very companies that make up a significant part of their Stock holdings (namely AXP and KO). Leeb's theory is that Berkshire's tremendous strength is their large position in the field of Reinsurance, which he refers to as a "rapidly growing Industry". With their strong Capital base (one that Leeb claims is 3x larger than its nearest competitor), he feels that this should ensure growth in the "Mid-Teen percent" area, even during times when other Insurers/Reinsurers are performing badly.
Leeb Theory #6
One would be wise to invest in the "BRAC" Countries (Brazil, Russia, Australia and Canada) as these are the 4 countries who have the most resources that they are able to export
This is a bit of a variation of the famous "BRIC" acronym which refers more to the top 4 emerging economies. What Leeb is getting at is that these countries will be in a position to export significant amounts of at least one of the key resources needed by the world. His advice is to invest in all aspects of these economies, but for slightly different reasons.
The "BR" part of the equation are more growth plays. While they will be exporting a significant amount of their resources (which you can invest in through ETF), you are also investing in the domestic growth that these two emerging economies are going to undergo. In the case of the "AC" countries, you are investing more in their export side of their economies as neither of these countries are likely to see the same growth rate as the first two. This helps to balance out the risk/reward equation.
In the case of Canada, you are getting the widest variety of resources (as they have dominant resources in Oil, Nat Gas, Potash, Diamonds, Uranium, Base Metals and Fresh Water), where as the other ones tend to have their resources more focuses on a couple of different commodities.
I do differ a bit from Leeb in one manner, in that he mentions owning an ETF for the Broad stock market for each individual country. While this may make some sense, you do have to be careful in that you may be owning significant parts of your portfolio in companies that will not do well in the upcoming Inflationary environment.
In the case of Canada, you would be owning up to 40% of the portfolio in Financial-related Stocks, many of which have significant presence in areas of the world that may not do well in the upcoming times. My preference would be to own stocks that are direct plays on the commodities themselves, plays on where the wealth of the commodities may be invested, and direct plays on the increased wealth of the economy (such as Retail companies/REITS that are specifically focused on those domestic markets)
Overall, as a small investor, I can only hope that Leeb's theories do not come true (I believe that he even states this in the book). The reality is that the book shows a long-term view on a problem that many investors/politicians may be too short-sighted to see. I would recommend it as a good read, even if you don't subscribe to his theories
Disclosure -- Long on TRP, GLD, RIG, BHI, SLB, WFT, TIP, BRK.B,
No Current Short Positions in any of the stocks mentioned.
EarlyOne
16年前
Commodity Equity ETFs Get Active - What about Futures?
by: Hard Assets Investor May 25, 2009
By Lara Crigger
With the recent flurry of news surrounding actively managed ETFs news, it was only a matter of time before the trend eventually hit commodities.
Last week, Claymore Securities filed to launch three new actively managed commodity equity ETFs: the Claymore Delta Global Infrastructure Fund, the Claymore Delta Global Hard Assets Fund and the Claymore Delta Global Agribusiness Fund.
Claymore's new funds are all equity-based. They are not the first actively managed ETFs filed with the SEC - indeed, quite a few such funds are already trading - but they are distinguished by being truly active in the traditional (read: qualitative stock-picking) sense. While most "active ETFs" follow a quantitative strategy, the new Claymore products will have at least 80% of their constituent stocks chosen using traditional qualitative methods by the funds' subadviser, Delta Global Advisors.
For all three of the funds, Delta Global will pick companies with a minimum $400 million market cap, selecting stocks using "a top-down approach to global markets and the infrastructure-related sub-sectors, along with a bottom-up approach to individual companies."
To get a better understanding of Claymore's new equity-based funds, let's take a look one by one:
Claymore Delta Global Infrastructure Fund
If approved, Claymore's infrastructure fund would capitalize on two hot themes - infrastructure and emerging markets - by seeking out companies involved in the developing world's building boom.
According to the filing, this includes miners, basic materials suppliers, utilities, telecoms, infrastructure engineers, water infrastructure, and road, rail, port and airport builders and operators.
Claymore's new ETF will be squeezing into an already crowded field of global infrastructure funds, including the SPDR FTSE/Macquarie Global Infrastructure 100 ETF (NYSE Arca: GII), the First Trust ISE Global Engineering and Construction Index Fund (NYSE Arca: FLM), the PowerShares Emerging Markets Infrastructure Fund (NYSE Arca: PXR) and the market's 800-lb gorilla, the iShares S&P Global Infrastructure Index ETF (NYSE Arca: IGF).
So far, IGF has accumulated $248.9 million in assets as of May 18, dwarfing its competitors. It also offers a diverse range of sectors: 41% of its holdings are industrials, 37% are utilities and 20% are energy companies.
But IGF has a high concentration in U.S. companies (22.49%). If Claymore can offer a more global approach, it could give IGF a run for its money.
Claymore Delta Global Hard Assets Fund
Meanwhile, for Claymore's active Hard Assets fund, Delta Global would invest in companies that stand to benefit from fluctuations (both up and down) in hard commodities prices. According to the filing, that includes those that mine, process and sell hard commodities, like precious metals, base metals, energy and energy services.
"Hard commodities" include a full range of metals - everything from gold and silver to copper and zinc - as well as natural gas, coal and even uranium.
Again, the fund faces competition from the current players in the market, including the iShares S&P North American Natural Resources Sector Index ETF (NYSE Arca: IGE) and the Van Eck Market Vectors RVE Hard Assets Producers ETF (NYSE Arca: HAP).
With $1.3 billion in assets, IGE has already gained a solid foothold in the market. However, the fund overwhelmingly invests in companies dealing with oil, gas and consumable fuels (64.9%), making it susceptible to the recent downward movements in oil prices.
HAP, on the other hand, promises broader, "one-stop shopping" for global hard assets distributors and producers, and even includes renewable energy stocks such as water and solar. But the fund has remained relatively small, with only $22.5 million in assets as of May 19.
Claymore Delta Global Agribusiness Fund
Claymore's proposed agriculture ETF would select companies involved in growing, selling, processing or trading a range of agricultural commodities, including corn, soybeans, wheat, sugar, palm oil, cotton, oats and fruit. Interestingly, it could also invest in biofuel companies.
Its main competitor would be the Market Vectors Agribusiness ETF (NYSE Arca: MOO), which we've discussed around here quite a bit lately. At $934 million in assets, MOO is large and in charge: The fund is up 13.33% YTD as of the end of April.
The Case For Active?
Details on exactly how the funds will be actively managed are still relatively sparse, and no expense ratios have yet been listed for any of the funds - a factor that could be key to their success. The challenge, as with any active strategy, is that active management has performed terribly by most measures for equity-based funds. In 2008, more than 70% of all actively managed U.S. equity funds trailed their benchmarks. With a track record like that, why would investors want to jump in?
The hope is that these funds, presumably with lower expense ratios, will do better. "If these funds can provide alpha, the bottom line is that investors will be happy," said Tom Lydon, president of Global Trends Investment and founder of www.etftrends.com.
Savvy investors will probably wait a few years to see how they do before testing the waters.
Actively Managed Commodities
Talk of Claymore's actively managed commodity ETFs has led some to wonder when someone will launch an actively managed commodity futures fund.
After all, while actively managed equity funds tend to trail their benchmarks, active commodity futures strategies have a track record of relative success. The academic literature suggests that momentum may be persistent in the commodities space, and that actively managed products could have the opportunity to consistently outperform their benchmarks.
Options do exist for interested investors. Managed futures, for example, are administered by special money managers called commodity trading advisers, each of whom possesses their own proprietary approach to futures trading. There are also always mutual funds, which have lately been on the rebound: Last week, inflows into commodities-based mutual funds hit their largest amount in almost two months, lifting total assets under management to $31.7 billion.
An ETF wrapper - with its increased tax efficiency and low expense - would possibly be even more attractive.
"Many [but not all] commodities tend to operate on their own individual trend lines and are completely uncorrelated," says Lydon. "If investors recognize that, they might be more receptive to commodity funds that take the many moving parts and varying trends into account and adjust accordingly."
The closest you can get today is the Elements S&P CTI ETN (NYSE Arca: LSC), which follows a simple momentum-based index strategy to take long and short positions in various commodity futures. Claymore itself has filed to launch an ETF-based version of a similar fund.
But there are other indexes out there that tap more directly into hands-on active management, and those indexes suggest a strong track record of performance. The Barclays CTA Index, for example, measures the performance of nearly 500 commodity trading advisers and has delivered positive returns in all but three of the past 29 years. Its worst year was 1999, when it lost 1.19%; its correlation to the S&P 500 is literally zero. You have to think investors would be interested in a fund that delivered similar results.
Of course, you would have to replicate its performance synthetically, as you could not get daily liquidity into 500 different CTAs. But surely someone can figure out how to do it ...
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