US-Listed ETFs Sorted by Asset Class and Year-to-Date Return

More documents

Recommendations

Info

Commonfund’s Gaspar: Why You Should Own Commodities By Cory Banks Commodities are gaining ground in the ETF world. Long considered the purview of hardcore traders, producers and investors with millions of dollars in margin, the doors to this asset class have been thrown open by exchange-traded products. Some of the largest ETPs in the industry track commodities, whether through benchmarks like the Dow Jones-UBS Commodity Index, subsection indexes for specific commodity markets, single commodities or even the spot price of physical commodities. Because of the overwhelming potential, many in the markets are bullish on the role of commodities in an investor’s portfolio. One of those bulls is Jess Gaspar, head of Quantitative Research at Commonfund Asset Management and coauthor of “Commodity Investing: Maximizing Returns Through Fundamental Analysis.” Gaspar believes in the growing importance of oil, agricultural and other commodity markets in an investment portfolio. Speaking with ETFR Managing Editor Cory Banks, Gaspar explained what makes these products so important, and what drives their performance. ETFR: Why should investors consider commodities as an asset class? GASPAR: First, over the last 10 years, commodities have had equitylike returns with equitylike volatility. Secondly, they have historically had low correlation with stocks, bonds and most other asset classes. The third reason is that you’ve got a relatively high correlation with inflation. There are very few quality inflation hedges. It’s an imperfect world when you’re trying to protect yourself from inflation, and commodities are one of the few asset classes that can actually help you out. Finally, commodities indices are composed of futures, which are the most liquid markets in the world. ETFR: Is it possible to index broad commodities? Jess Gaspar GASPAR: If you can make the right calls on individual commodities, go for it. If you’re less confident in your ability to make the right calls, then you buy indexes. When we’re talking about investing in commodity futures, they are an investment that is really predicated on the value of a particular commodity at a particular point in time. Why do commodity investments make money? The No. 1 reason is you get the collateral return. When you buy a future, it’s basically setting aside margins, no money down. So you earn your collateral. For most folks, that’s T- bills. And in some periods, unlike the present, T-bills can actually have a decent rate of return. The second reason is insurance. This is why most people would argue that commodities are an attractive investment. Producers of commodities tend to have long time frames. They need to put in place plants or mines or facilities to make a commodity. When they’re thinking about a large capital expenditure, they don’t want to take a huge risk. They have no revenues associated or low revenues associated with that capital expenditure. What they want to do is sell forward their production. They’re willing to pay a little bit extra to get rid of the risk. So commodities investors are earning the insurance premium provided by producers and other long-term sellers. The third reason you make money in commodities is rebalancing. There are 19 commodities in the Dow Jones-UBS Index and it rebalances. The index ends up selling the expensive commodities and buying the cheap ones. And that rebalancing itself is a source of return when there are instruments that are imperfectly correlated with one another. And then the fourth reason—and I think this is a little more subtle—is convenience yield. If there is a product that, in some states of the world could be scarce, it’s pretty helpful to have it. If there is an environment where you might not be able to get food, you’d be in a lot of trouble. So you will store a little bit. Well, what happens is that for most inventory levels of corn or beans or wheat or whatever it might be, there is a fairly calm relationship between the inventory level and the price of the underlying product. When inventories get scarce, it gets highly nonlinear. They call it a hockey stick. And the reason is because if you can’t get it, you’re going to pay whatever you can because you don’t want to starve. Now that’s clearly an exaggeration of reality. However, if you can’t get heating oil or natural gas, you’re going to pay a pretty high price in the winter. If you can’t get copper to produce cars, and it’s going to hold up your entire production process, you’re going to pay a lot for copper. So there’s this region of inelastic demand when you have small inventories that can really lead to profitable spikes in prices. So, one of the benefits of holding commodity futures and commodities in general is you can earn some premium in those times of shortage. 6 ETFR • December 2011
InsideETFs PORTFOLIO MANAGEMENT 5 th annual conference 2012 InsideCommodities InsideIndexing InsideCommodities www.InsideETFsConference.com /ETFR From the producers of: InsideCommodities InsideETFsEurope InsideIndexing January 22-24, 2012 InsideIndexing InsideETFs Designed specifically for FINANCIAL ADVISORS InsideETFsEurope Featured Speakers Include: InsideETFsEurope InsideETFs InsideETFs Tom Dorsey President, Founding Member, Dorsey Wright & Associates Burton Malkiel Professor of Economics Princeton University Ben Mezrich Author of “The Accidental Billionaires” Michael Milken Chairman The Milken Institute Robert Shiller Professor of Economics Yale University Conference attendees will be able to: Network with more than 650 financial advisors Gain access to over 30 informative sessions including our LIVE ETF Trading Seminar Participate in our NEW ETF Expert Track Celebrate the industry’s achievements at our inaugural IndexUniverse ETF Awards Dinner Meet with representatives from every ETF issuer TAKE ADVANTAGE OF OUR FINANCIAL ADVISOR RATE: www.InsideETFsConference.com/ETFR or call 415-659-9006 Presented by:
Page 1 and 2: UPDATES www.indexuniverse.com/ETFR
Page 3 and 4: UPDATES IndexUniverse LLC. 353 Sacr
Page 8 and 9: Figure 1 10 Commodity ETFs To Watch
Page 10 and 11: Commodity ETFs from page 1 term cap
Page 12 and 13: InsideIndexing inaugural conference
Page 14 and 15: December 2011 U.S.-Listed ETFs Sort
Page 24: What’s really in your ETF index?

US-Listed ETFs Sorted by Asset Class and Year-to-Date Return

Create successful ePaper yourself

Delete template?

Save as template?