Commodities A Go Go

A company called ETF Securities, who among other things is the issuer of the Brent Oil Security (OILB.L) traded in London, has filed for 29 new commodity based ETFs, 29 of them. They will trade in London but should be available through brokerage firms in the US that offer access to foreign traded securities. There are two types of ETFs in this batch, one will be individual commodities and the other will be commodity baskets. Single Commodities Aluminum Coffee Copper Corn Cotton Crude Gasoline Gold Heating oil Lean Hogs Live cattle Nat Gas Nickel Silver Soybean Oil Soybeans Sugar Wheat Zinc Commodity Baskets All Commodities Agriculture Energy Ex-energy Grains Industrial metals Livestock Petroleum Precious Metals Softs (I assume this means soft commodities) Zowie. This is a double edged sword. In general I am all for having the choice of being able to access narrow themes like these but there will be people that use them incorrectly and hurt themselves because of it. It is not clear to me that too many do-it-yourselfers need to separate nickel from zinc. The industrial metal ETF will be a great tool for capturing the early stages of future economic recoveries and expansions. Some aspect of industrial metals are present in some of the current commodity products already out there but isolating this one part offers some appeal. Another basket that makes a good first impression (conceptually anyway) is the Soft Commodity basket which I assume will be sugar, soybeans, coffee, maybe rice and a couple of others-of course this might be the Agriculture basket instead (not much detail yet) but either way access...

Lots Of Chatter

There were a lot of comments left yesterday on the When To Go Back In post. It seemed like there was a fair bit of indecision, people questioning themselves, questioning me and readers seeking out new ideas. All of these are valid. One reader asks how many people are ahead of buy and hold this year. Great question. It may not be the right question however. First it speaks to not trading too much or too nimbly. Over trading usually is not the best thing. Over time tweaks need to be made. The reason may be a good one like a stock may have been a home run, is now too big and needs some trimming or it may be a bad reason like you were wrong. In a diversified portfolio there will be some of both. Even if you only make four changes a year not all of them will be correct. At 1304 the S&P 500 is up 4.29% plus dividends. Work with me here and assume every one benchmarks to this index. Chances are half the people are ahead and half are behind the index YTD. Next year it will not be the same half ahead. Some of those who are beating the market this year will beat it again next year and some will not. What matters is whether what you are doing gives you a reasonable chance to meeting your goal pursuant, hopefully, to some sort of plan you have saved in a spread sheet somewhere. If you beat the market last year by two points and you lag it this year by two...

When To Go Back In

you had spoken extensively about criteria to reduce equity holdings in a portfolio. Is it time to increase equity esposure? what is your criteria? Do we end up buying back in at higher levels? Tough question. The simple answer is buy when the market goes back above its 200 DMA but I have not done that this go around and I have lagged this move up from 1220. Lagged not missed. It seems like this person has been a reader for a while (thank you). For most clients I am about 75% invested and have not gone back in. For now that looks wrong. The question is does that stay wrong? The yield curve inversion has been getting deeper and the rally has come on little volume, deteriorating internals (per Michael Kahn) for most of the move and has done exactly what a lot of people have said which is the market will rally but make a lower high. So far that is not wrong. I should have been more invested but I did not get more aggressive. I have written a lot about not having too much cash raised and while some days it does feel like I have too much cash the things going on right now almost always lead to a bad market. Could this time be different? Of course, this is why I have much more than a toe in the water. This is a situation where I know how the markets have reacted in the past, am only partially defensive which means the consequence for being wrong will not be bad. Also keep in...

Detailed Question

A reader left a great question that you can read here, which I will try to answer with this post. The comment was partly in response to a comment I made about not getting too carried away with success of the dividend ETFs of late. They have done well because large cap value has done well. To be clear I am generally a fan of dividend ETFs but I do not think they will be up if large cap value goes down. The comment from the reader says that SDY is superior and while that may be, if IWD, the reader’s proxy for large cap value, goes down by 10% SDY will not be up 5%. According to Portfolioscience.com SDY and IWD have a .897 correlation. If I understood correctly the reader looked at a similar chart as I have placed here. He looked at SDY’s ratio to IWD. Since DVY has been around longer I used that one instead. I think this is valid because SDY and DVY have 0.92 correlation and the returns of each have been very similar since SDY’s inception last November. The chart covers two years and it shows DVY lagging IWD. Since May, the nod goes to DVY. The second chart is the more typical comparison. It covers two years and shows IWD pulling away by a mile. For the trailing twelve months IWD is up 13% and DVY is up 6%. The dividend advantage for DVY is only about 150 basis points. For the last three months the two are dead even and SDY also had the same return for the last...

Why Aren’t They Interviewing This Guy?

When I was in high school I played basketball. There was one game in 10th grade where I had a jump ball with a kid named Chip Bunker who was 6’10”. I am 6’2″. I have had some fun questioning why John Connor from Third Millennium Russia Fund (TMRFX) is viewed as being so smart about the Russian Stock Market when it seems like the fund always badly lags the market. Barron’s interviewed Samuel Oubadia, manager of the ING Russia Fund (LETRX). The chart I attached is YTD so there are no dividend distortions. LETRX is Chip Bunker and TMRFX is me. Do the people at CNBC know about this...