Gone are the days when investors looking to make a play on the rising oil prices did so through equities of energy companies that enjoyed profitability at every crude oil price spike. With the rise of the ETF industry, investors have changed the way while approaching commodity investing specially in the oil and natural gas segment. Knowing how you can invest in oil should be a part of your game plan whether it’s time to buy natural gas and oil or not.
One of the popular exchange-traded commodity product available to U.S. investor offering exposure to crude oil is the United States Oil Fund (USO). The US Oil Fund (USO) seeks to reflect the performance, less expenses, of the spot price of West Texas Intermediate (WTI) light, sweet crude oil. The fund invests in futures contracts for WTI light, sweet crude oil, other types of crude oil, heating oil, gasoline, natural gas and other petroleum based-fuels that are traded on exchanges. The fund also invests in other oil interests such as cash-settled options on oil futures contracts, forward contracts for oil, and OTC transactions that are based on the price of oil.
The USO was created as a proxy to track the price of oil. When the fund was first created, its price was exactly 1-1 that of the current future’s month oil price. USO is essentially a rolling ETF, which means in essence that every 30 days or so, the ETF has to “roll” into the forward contracts of oil before the ones it is holding expires. Rolling the current month’s contracts into the next month’s contracts, especially lately, creates what is called contango when the future price is higher than the current price. Since the United States Oil fund relies on the use of derivative contracts rather than physical assets experts fear that it just might get entangled in the vagaries of the crude oil markets such as price contango. Some of the losses are however mitigated because the USO earns interest on the money it collects from investors, and because it only needs 10% of those funds to actually secure the futures contracts because of leverage.
On the positive side, whenever the future contract costs less than the previous month’s contract, and thus the fund actually earns a higher rate of return than the fund it is tracking.
Top Ten Holdings - USO
as of 06/30/2010
Company YTD Return % of Assets
Future Contract On Wti Crude Future Jul10 -- 24.41%
Future Contract On Wti Crude Future Jul10 -- 19.48%
Fidelity Instl MM Fds Government I -- 16.50%
FIGXX -- 9.60%
GSGXX -- 4.40%
Future Contract On F/C Ws Crude Future July10 -- 3.25%
USO Total expense ratio: 0.96%
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Showing posts with label Commodity ETFs. Show all posts
Showing posts with label Commodity ETFs. Show all posts
Monday, July 12, 2010
SLV - iShares Silver Trust: An Insight
While most investors are well aware of gold’s unprecedented march fewer are familiar with the yellow metal’s often overlooked cousin, silver. However many big investors consider the metal to be a sound investment due to robust industrial demand, its traditional role as a store of value, and its current ratio compared to gold. In any case, silver ETFs are an efficient way to invest in the metal without dealing with expenses of holding a physical amount of silver in your possession.
Silver is a very versatile metal; it’s not only popular in jewelry, but it has a wide range of industrial applications that put it in a prime spot to benefit in the recovery. It’s an excellent conductor of electricity and is popular in water purification, as well. Silver is also fast becoming a critical component of emerging technologies that will undoubtedly be critical to life in the 21st century. Silver plays a crucial role in solar technology, finding its way into 90% of all crystalline silicon photovoltaic cells, as well as silver embedded bandages and water purification devices.
On April 28th, 2006, Barclays launched the first silver exchange-traded fund in the US. named iShares Silver Trust (SLV) traded on the AMEX as SLV, the iShares Silver Trust was eagerly anticipated by silver investors ahead of its birth. When SLV was born in late April 2006, it had 21m ounces of silver stored in trust. But this highly anticipated ETF proved hugely popular and SLV demand growth far exceeded that of silver itself. So SLV’s custodians issued more shares and used this cash to buy more silver to equalize this imbalance. Just two weeks after launch, SLV’s holdings had more than tripled to 65m ounces. SLV is backed by phyiscal holdings of silver, with $5.5 billion in assets, and the fund has an expense ratio of 0.5%. Historically, when gold prices increase, so do silver prices. However, silver has industrial applications, which makes it less volatile than gold. SLV’s trading volume should also offer insights into how its popularity is growing and how silver-price movements affect the psychology of stock traders owning SLV. Not surprisingly, the volume trends in SLV are very similar to GLD’s in its own first couple years.
SLV ValuationVisit http://www.worldmarketpulse.com for the complete article or simply Click Here
EPS: $-3.07
P/E: -5.7752
Relative Strength: 86
Relative Strength Ranking: 0.0478
Short Volume: 0
Options Available: 266
Exchange: NYAR
SPDR Gold Shares: World's Second Largest ETF
With economic uncertainty and gradual weakening of the currencies specially the US Dollar, investors have been searching for a safe place for their funds. Uncertainty in the global Oil prices has not helped the investors but gold has continued its long-term advance to record high levels drawing investors to this traditional safe-haven asset.
Owning a gold-focused ETF is a good way to get physical exposure to gold without the hassle of taking physical possession – finding storage, paying for storage and so on.
Experts feel that ongoing economic uncertainty is likely to continue make gold a hot investment, with SPDR Gold Shares (NYSEArca: GLD) among the most popular means of participating. GLD opened up history’s first direct conduit between gold and the vast pools of capital in the stock markets. GLD is the second-largest ETF in the world, with $50 billion in assets, and the world’s sixth-largest owner of physical gold. Each share of GLD is backed by physical gold bullion, which makes it an alternative to actually investing in physical bullions. Several factors have contributed to the spike in assets: concerns over the Euro zone sovereign debt crisis, fears of a double-dip recession, possible inflation worries and a need for a general safe haven for assets. GLD now hoards a record total of 1,316.18 metric tons of gold, a level that rivals most of the world’s central banks.
SPDR Gold Shares offer investors an innovative, relatively cost efficient and secure way to access the gold market. Originally listed on the New York Stock Exchange in November of 2004, and traded on NYSE Arca since December 13, 2007, SPDR Gold Shares has been one of the fastest growing ETFs in the US. SPDR Gold Shares now trade on the Singapore Stock Exchange as well as the Tokyo Stock Exchange and the Stock Exchange of Hong Kong.
Today GLD is the second largest ETF on the planet, behind only SPY which tracks the flagship S&P 500 stock index. With this still-growing ETF already a force to be reckoned with, no investor or speculator in the precious-metals realm can afford to ignore it.
Visit http://www.worldmarketpulse.com for the complete article or simply Click Here
Owning a gold-focused ETF is a good way to get physical exposure to gold without the hassle of taking physical possession – finding storage, paying for storage and so on.
Experts feel that ongoing economic uncertainty is likely to continue make gold a hot investment, with SPDR Gold Shares (NYSEArca: GLD) among the most popular means of participating. GLD opened up history’s first direct conduit between gold and the vast pools of capital in the stock markets. GLD is the second-largest ETF in the world, with $50 billion in assets, and the world’s sixth-largest owner of physical gold. Each share of GLD is backed by physical gold bullion, which makes it an alternative to actually investing in physical bullions. Several factors have contributed to the spike in assets: concerns over the Euro zone sovereign debt crisis, fears of a double-dip recession, possible inflation worries and a need for a general safe haven for assets. GLD now hoards a record total of 1,316.18 metric tons of gold, a level that rivals most of the world’s central banks.
SPDR Gold Shares offer investors an innovative, relatively cost efficient and secure way to access the gold market. Originally listed on the New York Stock Exchange in November of 2004, and traded on NYSE Arca since December 13, 2007, SPDR Gold Shares has been one of the fastest growing ETFs in the US. SPDR Gold Shares now trade on the Singapore Stock Exchange as well as the Tokyo Stock Exchange and the Stock Exchange of Hong Kong.
Today GLD is the second largest ETF on the planet, behind only SPY which tracks the flagship S&P 500 stock index. With this still-growing ETF already a force to be reckoned with, no investor or speculator in the precious-metals realm can afford to ignore it.
Visit http://www.worldmarketpulse.com for the complete article or simply Click Here
Commodities ETF: The Easier Way To Invest In The Commodity Segment
Every time you stopped at a filling station for gas or gone out to buy a precious gold ornament for someone, your heart must have felt the exponential rise in the commodity segment. In spite of stock trading in popular blue chip companies, the fact of the matter is that the commodity market brings with it a lot of opportunity to multiply your funds if you trade them with caution. Investing in commodities or commodity trading is very risky and should only be attempted if you know what you are doing. For those who had always wanted to invest in the commodity trade segment but were skeptical about timing the futures and options market correctly, the next best option is that of investing in a commodity ETF.
The commodity market as we know is actually a collection of 48 worldwide markets that trade 96 commodities. Everything from silver to orange juice concentrate can be sold. The largest market here in the United States is located in Chicago. Smaller in size and fame, the Chicago Mercantile Exchange or CME trades in a large amount of commodities.
Commodity ETFs come in several forms, but most were created to mirror the returns of commodities by investing in the commodity futures markets. They are all buy futures contracts based on the amount of funds they receive from investors. An excellent feature is that they trade just like a stock and you can buy or sell at any time during market hours. More importantly, you cannot lose more than your initial investment with an ETF, as many have this fear when they consider the futures markets. Because futures provide leverage (more exposure than the actual cash invested), ETFs that use futures contracts have uninvested cash, which they usually park in interest-bearing government bonds. The interest on the bonds is used to cover the expenses of the ETF and to pay dividends to the holders.
A number of commodity funds are actually structured as exchange-traded notes (ETNs) that are linked to futures-based commodity benchmarks. Commodity ETNs have both potential advantages and drawbacks. Because they don’t actually invest in futures contracts, ETNs will generally exhibit lower tracking error, and the management process may be more cost-efficient. But because ETNs are senior unsecured debt securities, they expose investors to the credit risk of the issuer. In the case of a bankruptcy, there are no underlying assets to be distributed to investors. Most ETN issuers maintain very high credit ratings, but the risk of default should never be completely written off.
ETFs and ETNs are however treated differently for taxation purposes. Current opinion is that all gains on ETNs held for longer than one year are treated as long-term capital gains, whereas an investor owning a futures-based ETF is taxed on any capital gains on the underlying futures held by the fund
Experts believe that the fast rate of industrialization in China and India and the integration of Russia and Eastern Europe into the global economy is going to boost the demand for commodities and drive the prices higher. Commodity trade investors are bullish that this trend would result in a long-term uptrend.
Visit http://www.worldmarketpulse.com for the complete article or simply Click Here
The commodity market as we know is actually a collection of 48 worldwide markets that trade 96 commodities. Everything from silver to orange juice concentrate can be sold. The largest market here in the United States is located in Chicago. Smaller in size and fame, the Chicago Mercantile Exchange or CME trades in a large amount of commodities.
Commodity ETFs come in several forms, but most were created to mirror the returns of commodities by investing in the commodity futures markets. They are all buy futures contracts based on the amount of funds they receive from investors. An excellent feature is that they trade just like a stock and you can buy or sell at any time during market hours. More importantly, you cannot lose more than your initial investment with an ETF, as many have this fear when they consider the futures markets. Because futures provide leverage (more exposure than the actual cash invested), ETFs that use futures contracts have uninvested cash, which they usually park in interest-bearing government bonds. The interest on the bonds is used to cover the expenses of the ETF and to pay dividends to the holders.
A number of commodity funds are actually structured as exchange-traded notes (ETNs) that are linked to futures-based commodity benchmarks. Commodity ETNs have both potential advantages and drawbacks. Because they don’t actually invest in futures contracts, ETNs will generally exhibit lower tracking error, and the management process may be more cost-efficient. But because ETNs are senior unsecured debt securities, they expose investors to the credit risk of the issuer. In the case of a bankruptcy, there are no underlying assets to be distributed to investors. Most ETN issuers maintain very high credit ratings, but the risk of default should never be completely written off.
ETFs and ETNs are however treated differently for taxation purposes. Current opinion is that all gains on ETNs held for longer than one year are treated as long-term capital gains, whereas an investor owning a futures-based ETF is taxed on any capital gains on the underlying futures held by the fund
Experts believe that the fast rate of industrialization in China and India and the integration of Russia and Eastern Europe into the global economy is going to boost the demand for commodities and drive the prices higher. Commodity trade investors are bullish that this trend would result in a long-term uptrend.
Visit http://www.worldmarketpulse.com for the complete article or simply Click Here
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