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

A new exchange traded fund offers a new approach for adding exposure to commodities through ETFs.

Ian Salisbury reports that the U.S. Commodity Index Fund (USCI) selects 14 commodities from a roster of 27 options and assembles an equal-weight portfolio on a monthly basis.  The model selects commodities that are likely to outperform due to inventory levels or price momentum.

Using a back-dated simulation, the approach would have delivered a 20% annual return over the past 10 years.  That compares to 7% for the s&P GSCI benchmark.

According to Salisbury, USCI places less emphasis on energy and more weight on preciouse metals.  For example, the iPath S&P GSCI Total Return Index ETN (GSP) has about 70% of its value tied to energy commodities and about 3% tied to gold and silver.  USCI has about 14% in energy and 14% in gold and silver.

Several hedge funds are using an exchange traded fund to invest in gold.

According to the WSJ’s John Spence, Eton Park Capital, Paulson & Co. and Soros Fund Management have established significant stakes in SPDR Gold Shares (GLD).

Investors have had a love-hate relationship with both the euro and the dollar in 2010 reports John Spence.

Risk aversion is a major driver of investor inflows into the dollar.  A major beneficiary is the PowerShares DB US Dollar Bullish Fund (UUP) which tracks the dollar relative to a basket of foreign currencies including the euro, Yen and British pound.

Movement into the dollar has meant a weakening euro as reflected in the CurrencyShares Euro Trust (FXE).  The $280 million ETF carries an expense ratio of 0.40%.

Scwhab’s commission free ETFs have proven popular and the investment firm has responded by adding three bond ETFs.

According to Cassandra Sweet, Schwab’s most popular ETFs are the Schwab U.S. Broad Market ETF (SCHB) and the Schwab International Equity ETF (SCHF) with about $300 million of assets each.

The new bond exchange traded funds include the Schwab Short-Term U.S. Treasury ETF (SCHO), Intermediate-Term U.S. Treasury ETF (SCHR) and U.S. TIPS ETF (SCHP).

A common strategy for 2010 was to bet against Treasury bonds.  The thinking was that a recovering economy would lead to rising interest rates according to WSJ columnist John Spence.

However, the rising rates have failed to materialize and bets against treasurys have suffered big losses according to Spence.  In fact, the iShares Barclays 20+ Year Treasury Bond Fund (TLT) has actually gained 10% year to date.

Other ETFs that have suffered in the face of strong treasury prices include the ProShares UltraShort 20+ Year Treasury (TBT) and the Direxion Daily 30 Year Treasury Bear 3x Shares (TMV).

How do you make money with exchange traded funds in a range bound market?

That’s the question raised by the WSJ‘s Ben Levisohn in the column Strategies for a Sideways Market.

Levisohn reports that shorting the Direxion Large Cap Bull 3x (BGU) and Large Cap Bear 3x (BGZ) ETFs would have returned $1,100 on a $10,000 investment year to date.

Another idea for making money when the trend isn’t clear?  Selling covered calls.

A way to play covered calls with ETFs is the PowerShares NASDAQ-100 BuyWrite Portfolio (PQBW). The ETF normally invests at least 80% of its total assets in common stocks of the 100 companies included in the NASDAQ-100® Index and then writes call options on those stocks.

That’s the question asked by John Spence when looking at the suprising outperformance of exchange traded funds that track real estate stocks.

Through July 29, the SPDR Dow Jones REIT ETF (RWR) was up 15% compared to a negative 1% performance by the S&P 500 year-to-date.

Other popular REIT ETFs include the Vanguard REIT ETF (VNQ) and iShares Dow Jones U.S. Real Estate Index Fund (IYR).

Dilbert’s creator, Scott Adams, mocks active managers and invests in exchange traded funds reports Karen Damato.

Adams mostly uses two ETFs for stock exposure — the SPDR S&P 500 (SPY) and the iShares MSCI Emerging Markets Index fund (EEM).

According to Damato, Mr. Adams discovered ETFs after firing a large wealth manager that had placed a “shockingly” large sum of his portfolio into stocks of companies that turned out not to be real — Enron and Worldcom, for example.

Some financial advisers are moving away from actively managed bond funds in favor of ETFs.

Jane Kim reports that the Pimco Total Return Fund may be so big that some investors say it can’t operate as effectively in some markets as it once did.

That has has financial advisor Jeffrey Zures moving out of Pimco Total Return and into the iShares Barclays Aggregate Bond Fund (AGG). According to Kim, Zures comments that “Rather than trying to find a needle in a haystack, we decided to buy the overall haystack.”

As an investor, you need to seize opportunities like the one we have now.

That’s the advice of Forbes columnist David Dreman who is urging investors to take a look at oil and gas services stocks that have been battered by the BP oil spill and Obama moratorium on drilling in the Gulf.

Specifically, Dreman recommends exchange traded funds including the iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (IEO) and Oil Services Holders Trust (OIH).