Latest news, trends and ideas for investing with exchange traded funds | ETF Commentary

Platinum and palladium prices are climbing higher thanks to the recent introduction of two new ETFs according to a WSJ article by Matt Whittaker and Carolyn Cui.

The ETFS Physical Platinum Shares (PPLT) and ETFS Physical Palladium Shares (PALL) began trading on January 8.  Since that time, both funds have each accumulated 100,000 ounces of the metals commonly used by the automotive industry for catlytic converters.

Thanks in part to the demand created by the new funds, prices for both metals have risen steadily since the beginning of the year.

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Forbes recently interviewed Jean-Marie Eveillard, the semiretired manager at First Eagle Investment Management, on his use of gold as part of his famously patient approach to value investing.

According to the Forbes piece, Eveillard suggests individuals put 5 to 10% of their assets into gold.  Four ETFs listed by Forbes as “smart ways to play” gold include:

iShares Comex Gold Trust (IAU)

Market Vectors Gold Miners ETF (GDX)

PowerShares DB Gold Fund (DGL)

SPDR Gold Shares (GLD)

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Stocks and commodities have moved in lock step over the past 15 months, thwarting investors seeking to diversify their portfolios. However, silver and gold proved to be able diversifying investments.

In the article Stocks, Commodities Are Unlikely Buddies, the WSJ’s San Mamudi reports that funds that track the S&P 500 are up 26% this year while commodities are up 22%. Both asset classes tanked in 2008 and have declined on an annualized basis over the past three years.

On the other hand, gold was up 6.6% in the period September – December 2008 while the S&P 500 plunged 30%. Over the past three years, gold is up 10.6% on average.

The largest gold ETF is the SPDR Gold Trust (GLD) which holds physical gold. Silver, which has performed similar to gold, can be held through the iShares Silver Trust (SLV).

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The Journal’s Tom Lauricella recently took a look at whether investors should own gold stocks or ETFs that track the price of gold.

Since gold miners have leveraged exposure to the price of gold, gold mining stocks tend to be more volatile than the price of the metal. Gold stocks are also subject to other risks such as production delays or being swept up in a broader market move. For example, at the height of the financial panic, the SPDR Gold Shares (GLD) was down 21% while the average precious metals stock fund lost 52%.

In addition to GLD, Lauricella also mentions the iShares Comex Gold Trust (IAU) as an alternative way to gain exposure to the price of gold.

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ETFs that are supposed to track the spot price of oil have underperformed this year.

In the column Exchange-Traded Funds Miss Oil Gusher, the WSJ’s John Jannarone writes that although oil prices have soared 51% this year, the largest oil ETF, U.S. Oil Fund (USO), has risen 8%.

USO attempts to track the spot price movements of crude oil by buying the near-month futures contract. However, a glut of physical oil has caused spot prices to trail futures prices, a market condition known as “contango”. The net result is that USO’s performance has not kept up with the spot oil market.

USO is not alone in terms of performance problems. An ETF that takes a different approach to the futures market, the U.S. 12 Month Oil Fund (USL), invests in oil futures contracts across a 12-month period and has done better than USO but still lags behind spot prices in 2009.

As an alternative to USO, Jannarone recommends Anadarko Petroleum (APC), an oil exploration company that has broadly matched oil-price rises this year and pays a dividend.

ETFs with material stakes in Anadarko include the Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (IEO) with 7% of the fund invested in APC and PowerShares Energy Exploration & Production Portfolio (PXE) with a 5% stake.

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Rising investor interest in Gold as an asset class has produced a bounty of Gold ETFs and ETNs.

In the column Gold Rally Spurs a Boom in Funds, the WSJ’s John Spence writes that investors worried about inflation and the global economy are stuffing cash into gold ETFs. As a result, we now have more choices than ever when it comes to gaining exposure to gold through exchange traded products.

Spences lists several ETFs and ETNs that provide exposure to gold including:

• ETFS Physical Swiss Gold Shares (SGOL)
• iShares Comex Gold Trust (IAU)
• SPDR Gold Shares (GLD)
• E-TRACS UBS Bloomberg CMCI Gold ETN (UBG)
• PowerShares DB Gold Fund (DGL)
• PowerShares DB Double Long ETN (DGP)
• ProShares Ultra Gold (UGL)
• PowerShares DB Gold Double Short ETN (DZZ)
• PowerShares DB Gold Short ETN (DGZ)
• ProShares UltraShort Gold (GLL)

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As hedging falls out of favor, gold mining companies and ETFs will become more closely linked to the price of gold.

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US regulators’ war on speculation is resulting in collateral damage – the small investor.

According to the WSJ’s Brian Baskin’s article Small Investors Face Big Hit in ETF Push, exchange-traded fund investors are victims of the CFTC’s crack down on commodity markets. Commodity ETFs have ballooned to $59.3 billion by providing small investors an avenue for gaining exposure to commodity futures.

Baskin points out that several ETFs and ETNs have been affected by recent regulatory actions including the United States Natural Gas Fund (UNG), PowerShares DB Oil Fund (DBO), PowerShares DB Crude Oil Double Long ETN (DXO) and iPath Dow Jones-UBS Natural Gas Subindex Total Return ETN (GAZ).

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The WSJ’s Tennille Tracy is reporting that options traders are preparing for increased volatility in the stocks of gold mining companies.

In yesterday’s trading, options investors were establishing a “strangle” position in the Market Vectors Gold Miners ETF (GDX) by buying March $30 puts and March $45 calls. The position will only be profitable if the exchange traded fund trades above $49.60 or below $25.40 before mid-March.

The ETF invests in a broad range of range of small-, medium- and large-cap gold mining companies.

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Investors pulled around 40 metric tons out of Gold ETFs in July according to Allen Sykora at the WSJ.

Sykora reports that SPDR Gold Shares (GLD), saw outflows of nearly 58 metric tons since the end of June. GLD is the largest gold exchange traded fund.

Market observers provided mixed reaction to the news. Some believe that the outflows are due to short-term profit taking while others belive that this is a sign that the market has eased concerns about the credit crisis and is moving money into riskier assets.

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